How to Buy a Home With Less Than $8,000 Down
By Destination Home
In 2010, Christine and Ryan Herr bought a 1,200 square foot home in Costa Mesa, Calif., for $467,000. But instead of shelling out the expected 20% down payment for a mortgage, they put down just 3.5% or $14,000 (with an additional $6,000 in closing costs) — less than a quarter of what traditional financing would have required.
And they’re not alone.
Despite what you hear about lending standards being much tighter post financial crisis — and that you absolutely need 20% down to buy a home these days — there’s still the option of an FHA mortgage that requires just 3.5% down. For the median U.S. home price that would be just $7,100, and it’s assistance like this that’s helping families like the Herrs achieve first-time homeownership.
So how is all this possible? In the accompanying video we spoke to J. Philip Faranda, owner of J. Philip Faranda Real Estate, to discuss this option.
It’s an FHA loan, which is insured by the Federal Housing Administration, and because the government backs it, banks feel comfortable lending money to borrowers for less money down.
This type of loan has been around for 80 years, which is why Faranda calls it the “granddaddy of all first-time homebuyer programs.”
It’s “geared toward people who would be able to make the monthly payments [for a house], but don’t have money for a big down payment saved away,” he tells us in the accompanying video. There are many benefits, including the fact that the credit requirements are not as stringent and the down payment can be gifted. Check out the video to see more upsides.
The downsides? There can be higher costs in the long run. There’s an upfront mortgage insurance premium you have to pay at closing and then a monthly mortgage insurance premium you have to pay, as well. Watch the accompanying video to find out how the costs stack up against the possible benefits of this highly accessible home loan option.