First Time Home Buyer Advice from Lenawee County Real Estate Experts

First Time Home Buyer Information: The Dreaded Down Payment

The biggest challenge first-time home buyers are faced with is coming up with the down payment and closing costs required to get the mortgage. Saving for the down payment should be a goal that you are working toward long before you begin to shop for home.

How much do you need to save?

The down payment is typically a percentage of the overall purchase price of the home and this varies depending on the lender, the type of financing and the amount of the loan.

In the past a down payment on a conventional mortgage was usually 20% but in recent years lenders have been willing to accept as little as 3%. There are also government programs designed to help low-income families get mortgages with minimum to zero down.

Don’t forget about the additional closing costs associated with purchasing a new home. Loan origination fees, property tax pro-rations, hazard insurance and an appraisal are some examples of closings costs. When you submit a loan application, your lender will supply you with a good faith estimate of your closing costs.

The Gift Letter

If you otherwise qualify for a mortgage but you are short on cash for closing, many lenders will allow you to use gift funds. The gift can come from family, friends or other sources; the giver must sign a “gift letter” that states that the money is a gift and not a loan that has to be repaid. Most lenders only allow a certain percentage of the closing money to be a gift; the borrower must be able to show that they are using their own funds for most of the down payment.

Earnest Money Deposit

The buyer is generally required to deposit earnest money with the seller when they make an offer to purchase their home. If the offer is accepted, the earnest money is then credited toward the down payment. The amount of the deposit varies; sometimes the seller requires a set amount; sometimes a percentage of the purchase price. Be prepared to have funds available for this purpose.

Private Mortgage Insurance

In many cases where lenders accept less than 20% down they require the borrower to carry PMI or private mortgage insurance. The premium is often added to the monthly mortgage payment; the insurance protects the lender in case the borrower defaults on the loan.

Borrowers should watch their loan balance and request that the PMI policy is cancelled once they have paid off 20% of the loan. Some lenders do this automatically but many require that you request this in writing.

First time home buyers are often surprised at the amount of closing costs; a good real estate professional will give their client all the information they can to avoid unpleasant surprises.

Mark Goedert of Goedert Real Estate has been working with first-time home buyers and seasoned real estate investors for over 50 years. He provides information and resources for new home buyers to educate themselves so they can make a wise home buying decision.

Mark Goedert of Goedert Real Estate has been in business for over 50 years, working with real estate professionals, agents, developers, investors, REO brokers and first-time home buyers in Battle Creek, Hillsdale, Lansing, Jackson, Grand Rapids, Adrian, Howell, Sterling Heights, Monroe, Farmington Hills, Ann Arbor, Detroit and neighboring cities and communities.