Down Payment Myths & Options

Downpayment Myths & Options

[00:00:00] Well, good morning real estate fans. Alice Lema, here, broker John L. Scott, and beautiful southern Oregon with another edition of The Weekly Podcast. And today I am gonna talk about down payment myths and magic, four options for home buyers that may surprise. So this is a really, really fun topic because a lot of people think that you have to have 20% down to buy a house and you don't. So I wanna start by saying down payments every day of the week, we're buying houses with zero down, up to 25% down. So I just wanna give you the four programs and how each of them work. And we're gonna start with the three and a half percent down for FHA.

So f FHA, federal housing administration, and they are a government agency that helps support homeownership [00:01:00] with their lending. And the F H A program is a minimum three and a half percent down, but your payment will be a little higher, so you gotta keep that in mind. You gotta run the numbers. But the FHA program also has the ability to bring in buyers with a lower credit score.

In fact, I believe 588, 580, somewhere in there might be the lowest score you can have where other programs are higher. So the, the downside of f FHA the appraisers are more picky about the condition of the house because they have some federal support for this program. So they're gonna ask that the house being in better shape than normal. But that's partly why they can afford to help homeowners get these properties for three and a half percent down.

And that actually applies to multi-family if it's four [00:02:00] units or less. So, FHA buyers can actually buy a duplex, a triplex, or a fourplex with this program with three and a half percent down if you live on the property in the multi-family example. The downside though besides the condition having to be much better than normal, is that the mortgage insurance that goes on the property stays on forever.

And the reason that's a little bit of a downer is because you're paying that a hundred to 300 or whatever the rate is in your area, you're paying that every month, even if the property loan is paid down quite a bit. So in other programs we can refinance off, the mortgage insurance, but we're gonna talk about that next.

So, f h a great program, a lot of first time home buyers. A lot of people coming out of financial hardship for whatever reason are a lot [00:03:00] of times able to qualify for an FHA three and a half percent down. If if they don't qualify for the other ones. So that's certainly the good first one to talk about.

The second one I wanna talk about is the conventional mortgage. Now, conventional mortgages can sometimes be 3% down, but for the most part, the programs went 5% down or more. You do have to have a higher credit score. The lender that you're working with can run the numbers and tell you what yours needs to be.

But what's nice about the conventional program is that you can get into a home for 5% down, but again, your payment is gonna be higher cuz you're putting minimum down. But you can also use the conventional program for the multi-family triplex, duplex, triplex, and fourplex. All these have to be under, four units are under and you do have to live in it to get the [00:04:00] 5% down.

The other thing is the interest rates are lower. If you are in a home that you're living in or in a multi-family purchase that you're living in, then the rates are a little lower. So and then on, what I love about the conventional program is the appraisers are a little bit more generous about the condition.

You're still getting a good house. But they're not as fussy as the FHA appraisers. But what I really love about the conventional program is you can refinance off that mortgage insurance when you have a value of 20% equity. Like you've either paid down 20% or combination of paying down, plus the market going up. So the market goes up 20%, then you can refinance off your mortgage insurance, that one to $300 a month approx. Or whatever it is you're paying. So the conventional is my personal favorite. If you don't have 20% down.

Number [00:05:00] three is for investors, and you do need 20% down or sometimes 25% down. But when we're done talking about this one, we're gonna go to the zero. The zero program, but I wanna do the highest one next because if you're buying a property and you're not gonna live in it, then the, the lender is gonna want 20, 25, 30, 35% down depending on what you're buying. So if you're buying multi-family, five units and up, you're definitely gonna be more than 20%.

And you know what some of those loan program are not 30 years. They're shorter. They, they're, the lenders are thinking if you're a professional investor, well that's what they're thinking. You are if you're buying something and not living it, you're putting 20 to 30, 35% down. Then they they want a shorter term.

So a lot of those loans are 20 to 25 years. But again, your lender can check. And, you [00:06:00] know, since the crash is pretty far behind us, the housing crisis we had in 07, 0 8, 0 9 whenever your neighborhood started going down. But since then the rules are tighter. So it's It's not as risky for the lenders, but at the same time, they do wanna treat you, you know, more like a professional investor.

So that's really when you are required to have that much down. And if you don't have that much down, then check out some of my partnership videos on YouTube. The really fun one is, Mortgage before matrimony, but there's also several others of doing real estate transaction and mortgages with friends and family and other investors.

So you can go check that out. If you either don't have 20% down and you don't wanna live in the property, or you might have all that cash sitting in the bank, but you don't want to [00:07:00] use it on that particular property.

Okay, so now one of my favorites, number four, the Zero Down program. So we've. . Two ways we can do this. One is commonly aware in the in America is the Veterans Association, the VA program. So you do have to be a veteran or you don't have to be active duty, but you do have to have served and there's a special document that the government gives you, and then you can use what's called your VA benefits.

There's also a USDA program for civilians, but we'll talk about that next. So the VA program is near and dear to my heart, not only because we love our service people and they deserve all these benefits but you, it's, it's really fun because the VA allows the buyer, the veteran buyer to have a lower score than a civilian as part of their benefit package.

They don't have to [00:08:00] pay mortgage insurance at all, which is stellar because that really butters up their pre-approval wiggle room and they can usually buy a little bit more of a house or have a lower payment, which also cool too. So the VA programs are awesome. The rules for the condition of the property are pretty strict, similar to F H A because well first of all, they want the service member to have a good house, but also There's no down payment, so there's no skin in the game, so to speak.

So the rules about the condition of the house are much more strict, but we still do 'em all the time and it's very, very fulfilling and satisfying to hand keys to somebody who has served our country and getting a good deal on their loan. Lastly, the U S D A program is for civilian. , it's well actually a [00:09:00] veteran could use it too if they want.

They don't have that requirement one or the other. The U S D A program is from the United States Department of Agriculture, but the U S D A program is a government Sponsored program to support home purchases in the rural district. So check this out. You cannot buy a house in town in the U S D A program and they have a map for your region.

You can actually go onto the U S D A site map and type in an address and see if that address qualifies. But for our area, it's outside of Grants Pass, it's outside of Medford. There's a lot in Klamath Falls. There's a lot between here and the coast and there's a lot outside of Roseburg. Those are the areas we deal with most commonly.

And so it's really, really a beautiful program. Now, the U S D A program currently will [00:10:00] not let you lend on a manufactured on land. So if the house that you're looking at is in the country and it's a double or triple white, you're not gonna be able to use the U S D A program. But if you're a veteran, you can.

So the veteran program, the VA program, will let veterans buy manufactured on land if they're double wide. Usually like 1980 or newer, the U S D A program wants you to have a stick build. You know what else the U S D A program wants? They, they want you to not make a lot of money. So they they used to have a ceiling of about $80,000.

And sometimes they'll have household caps, like they add up all the. Income that's coming into your household. So for example, Warren Buffet would have a really hard time getting a U S D A loan , but but it's there for people who wanna live in the rural district who don't have tons and [00:11:00] tons of money, and you can do it with zero down.

But the loan itself, the USDA loan itself is more expensive. You do have your mortgage insurance, but the The loan fees that you'll see on your closing statement will be higher. But it's a great program. So and, and I work with all programs and we also work with cash buyers. So, but I just wanted to take this podcast time to clarify some of the options.

Cause as the season gets busier and the economy, regardless of what the economy's doing right now, we're still managing to sell and list quite a few homes. These questions come up where people are staying out of the market because they don't have 20% down. Now, the advantage of having a bigger down 10, 20, 30% is your mortgage is lower.

So [00:12:00] if you want a certain payment and you don't have enough down payment to make that happen right now, you have a couple of choices you can wait, which I don't advise. I know a lot of people think it's a bad idea to jump in. Southern Oregon consistently has such good appreciation, even in volatile times.

It's, it's better, in my opinion, if you just get something and stick it out, even if it's a little small or not quite what you wanted, that's your ticket. Especially if you're a first time home buyer, that is your ticket to the next real estate level. And I think the zero down programs help a lot with that, but your payment is higher, so the advantage to a bigger down payment is definitely what check you're writing every month.

And don't forget, on your mortgage, when you're running your calculations ahead of time, make sure you're including mortgage insurance if you're not 20% down, make sure you're including taxes and your homeowner [00:13:00] insurance. You wanna have that total monthly check that you're gonna write, and you wanna know that ahead of time.

You don't wanna be checking your principal and interest. And then be missing the three or $400 more you're gonna pay for taxes and insurance. And the taxes and insurance are regional to you. And if you're getting something in the rural districts in southern Oregon and there's trees, forest, something like that, then your, your insurance is gonna be higher because the insurance people are a little weird about the fire stuff now.

Okay, so that's our podcast for today. Hit me up text me, call me (541) 301-7980. I'm a great buyer agent, great listing agent. Work with a lot of investors. Work with a lot of tenants, first time home buyers and partner. So yeah, gimme a jingle. Let's talk about what's happening next in your real estate life.

Have a beautiful weekend. Hug those you love. Bye now.