How to Buy a House With a Small Down Payment
Nationwide, house prices are rising, and Spokane and North Idaho are no exception. And as prices rise, it becomes harder and harder for people purchasing a first home or people who have recently moved to this area to find affordable property. Even if you have been saving up for a down-payment or have money from a previous house sale, you may discover that the sort of home you could afford one year ago has now been priced out of your range. But don’t give up. With the right realtor and a quality mortgage partner, you can make your dream of owning your own home in this region a reality, without having to put up your entire savings.
House Financing: Know What You Can Afford
Homes in the Spokane/Coeur d’Alene area range widely in price, and the prices will depend on several factors: the neighborhood and school district, of course, but also on the amount of land the house sits on, the size, age, and condition of the home, and so on.
Most lenders want to see at least a 10% down payment from the buyer, and would prefer 20%. In a competitive housing market, that can be a lot of money to have to have on hand, and not everyone can manage it. But just because you don’t have that much cash on hand, don’t assume that you cannot find a willing lender.
Depending on the situation, lenders will also take into account other factors besides the amount of cash you are willing to lay out for a down-payment. For example, are you a veteran? There are VA loan programs available that will allow veterans to purchase homes with no money down. There are also FHA and USDA loans that require only a 3.5% down payment. Do you have a good job? Do you have an excellent credit history? Even some conventional home loans lenders will move forward with a 3% or 3.5% down-payment if they deem the borrower a safe credit risk. The only way to really find out what you can afford is to talk to a lender and get pre-qualified.
If you do decide to go with a very small down-payment, one key issue to investigate is whether you can truly afford the payments. This means not just the loan itself, but other costs of home ownership, such as Private Mortgage Insurance (PMI), homeowner’s insurance, Homeowners Association (HOA) fees, or any other fees that may be required.
Just because a lender will lend you the money does not mean that the payment will be comfortable for you, and it is important to know exactly what your budget situation will look like should you buy a house in a particular price range. For example, if you like to go on nice vacations, or spend evenings dining out at fine restaurants, don’t stretch your budget so thin that you cannot afford other things that are important to you, or the house you buy will end up being a burden rather than a blessing.
So think carefully about what is important to you. If you do not have a large down-payment or a large income, you always have the option of looking for less expensive properties. And just because your choices are limited does not mean that you have no choices: so stay positive, establish a realistic budget, and start looking.
Investigate Your Resources
Besides looking for home loan lenders that do not require a large down payment, there may also be other options for you, such as using resources besides your own bank account to fund your down-payment.
For example, both Washington and Idaho have programs for first-time homebuyers that will provide grants to assist with things like closing costs and down-payments. Or, if you have a retirement account, such as a 401(k) or an IRA, there may be provisions that allow you to borrow or withdraw those funds for a down-payment without having to pay penalties for early withdrawal–although you may face tax liability.
Another option is to find out if your family is willing to help with a gift of cash to be used for your down-payment. In fact, some young couples today ask for down-payment funds as a wedding gift in lieu of traditional gifts.
There are pros and cons to utilizing any of these alternative ways of increasing your funds for a down-payment, so make sure you obtain sufficient information and weigh your options before deciding whether any of these are right for you.
Work With a Real Estate Expert
Homes move fast in today’s market, but experienced agents have their fingers on the pulse of the market. If you try to look for a house through an internet search without having an agent on hand to show you the house and represent your interests, chances are, any house you find may be snatched up before you get your foot in the door. Working with a good buyer’s agent is important, particularly if your budget narrows your housing choices.
Make sure your agent has a clear idea of your budget and what type of house you want. Agents often learn of houses going on the market before they show up on an internet site, and this is a large advantage when your choices are limited.
The experienced agents at Prime Real Estate Group have worked with buyers whose financial situations vary widely, and they can give you assistance and information about programs and options that have helped other buyers finance their homes. To find out more about how you can purchase a home with a low down-payment, contact Prime Real Estate Group to speak to one of our home purchasing experts.