If you’re a millennial, you may feel like this is the perfect time in your life to start thinking about owning a home. However, many millennials are faced with the challenges created by a booming real estate market. Or at least the perceived challenges. This is of course, the high entry price for most homes. While this is not always the case, it is often the most influential one.
The percentage of millennials that currently own their own home sits at about 37%, which is a considerable dip when compared to the 45% of Gen X.
If you’re a millennial looking to start your journey as a homeowner, down payment assistance could be the route to take. Seattle’s Mortgage Broker is the local expert on the topic and have put together this article to help you as much as possible.
Down Payment Assistance
Down payment assistance is exactly that, helping potential homeowners to find the required capital in order to achieve a down payment on a home. It can be a tricky task, but Seattle’s Mortgage Broker is here to make the process as easy as possible.
How Much Down Payment Is Required?
Many people think that the down payment of a home is between 10 and 20%, but nowadays that is not always the case. In 2021, the average down payment paid by property owners is about 6% of the total purchase price. This might still sound high to some people, especially if you’re looking for a property valued at $800,000 plus.
Thankfully, there are measures in place to reduce the down payment required for some lenders.
You can now benefit from the following programs to bring this percentage down greatly:
- FHA Loans – 3.5% of mortgage value as a down payment
- Conventional 97 Loans – 3% as a down payment
- VA Loans – 0%
- USDA Loans – Also 0%
Creatively structuring your financing can also involve piggyback mortgages, or grants and local and state down payment assistance programs.
Benefits Of Utilizing Down Payments
As mentioned above, there are now certain programs that don’t even require a down payment. Should you really be worried about providing one? If you can, we would often recommend doing so for a variety of reasons. The most prevalent benefits of a down payment are listed below:
1. Less Monthly Repayment
Paying a percentage of the mortgage in advance will mean that the amount you pay each month is decreased. This will give you a greater sense of freedom with less to pay on regular bills.
2. Less Fees
Without a down payment, and sometimes even in the case of a small down payment, you will be required to pay mortgage insurance. This won’t be a huge sum, but it can definitely add to your expenses.
3. Improved Chances Of Approval
Getting a favorable mortgage can be tough at the best of times. Having the money available and being prepared to offer a down payment can make your quest much easier.
Available Down Payment Assistance Methods
The methods available to you will differ depending on your unique situation, but here are the most common ones:
Down Payment Loans
There are currently 3 down payment loan options you can consider. All 3 are smaller second mortgages.
There may also be grants available.
The first requires a repayment to start concurrently, alongside your primary mortgage.
The second means you are not required to pay back the mortgage until any of the following occurs:
- Your initial mortgage is paid off
- You arrange to refinance
- You sell the property
The final type means that the second mortgage can be forgiven over time. A percentage could be forgiven at the 5-year mark, 10-year mark and 15-year mark as an example.
In regards to the third repayment plan, you will be entitled to pay all associated fees if you pay off your primary mortgage, refinance or sell the house.
Things To Consider Before Seeking Down Payment Assistance
Before deciding on the right type of down payment assistance, you should ensure you meet the criteria. Your personal financial situation will often be compared to the following requirements:
- Income compared to the average price of the property
- Capital you have in reserve, should it be needed
- Your credit score, which is relevant with virtually all types of loan
You will likely receive greater priority if you are a first-time buyer, or at least not having purchased a property within the last 3 years.
Property Requirements
It’s not just you that has to follow certain conditions, the property you are looking to purchase must too.
It should be in a location that offers the specific down payment assistance you are looking for. There are various areas across the US that are referred to as ‘target areas’, meaning that many programs are in place for that specific location. Seattle is one of them due to high local living costs.
Get The Ball Rolling Today
Millennials now have options in place to help them acquire a home. If you’ve carefully evaluated this article and decided that a down payment assistance plan is the solution for you, finding an accredited provider is the next step.
Here at Seattle’s Mortgage Broker, we have years of experience with a variety of different lending programs. Get in touch with our friendly team today to discuss your situation and talk through your available options for getting onto the property ladder! We also offer free, no obligation quotes for your peace of mind.