Here you are. After carefully considering the location and amenities afforded, you’ve decided to purchase Athens, Georgia real estate. An excellent choice. Whether you are a first-time buyer or an experienced investor, you will have some idea of the cost of purchasing a home and the value of owning instead of renting. If you are worried about saving money for the 20% down payment, have no fear. You might be able to purchase a home with a lower down payment.
What is a mortgage, and why do I need a down payment?
Photo courtesy of PexelsLet’s cover the basics first. A mortgage is your home loan. Unless you pay cash for your home, you will need financing. Enter down payments. A down payment is a sum of money that a buyer gives to the purchase, usually a certain percentage of a property’s value. This money is evidence of a few things to the lender. It shows that you are serious as a buyer and willing to put yourself at risk for the home. It also proves to the lender that you are capable of financial responsibility and saving money to properly pay off the mortgage over time. But not all loans are made equal.
What loans are available, and what is the down payment?
There are a few different loans that can be used for financing homes for sale in Athens. You will have to decide which one is best for you based on your financial goals and lifestyle needs. The traditional down payment is the standard 20%. If you are purchasing an Athens luxury home at a closing price of $1,000,000, you would need $200,000 for your down payment. This doesn’t include the closing costs, insurance, and other fees associated with buying a home. However, some loans have down payments as low as 3% and 0% with certain special loans.
Conventional loans
A conventional loan is the type of loan that most people think of when they hear the word mortgage. These are the loans that have the 20% golden standard for down payments. However, paying 20% is not always necessary. Lenders are more likely to accept a lower down payment if you have a good credit score, typically over 750. A bonus: good credit scores will also lower your interest rate on the loan.
Many lenders require a credit score of at least 620 to qualify for a conventional loan. Those who have a higher credit score could receive a loan with a 10% down payment with little hassle, and the highest credit scores can take advantage of the 3% minimum down payment.
Keep an eye on the private mortgage insurance. If you finance more than 78% of your home, you will be subjected to PMI (private mortgage insurance) payments. This insurance is for the lender, but the cost gets passed to the homeowner. The PMI payments can, and should, be taken off once you have paid down your mortgage to below 78% of the total value. This will not happen automatically. If PMI payments are added to your mortgage, be sure you set a reminder to have it taken off when you have paid the loan down to the necessary level. It will be up to you to contact the lender to have the PMI payments removed.
Depending on the PMI amount, interest rates, and other factors, it may be best to put down the 20%. The important thing to remember is you have options. It is possible to buy a house with a conventional loan when you have less than 20% for a down payment.
FHA loans
FHA loans are insured by the Federal Housing Association, which gives lenders extra security when providing money. Because of the added security, lenders can offer lower down payments with a lower credit score requirement. With a minimum 500 credit score, lenders can offer a 10% down payment. It also scales. As the credit score increases, the down payments can be reduced to an amount as low as 3.5%.
There are a couple of things to be mindful of with FHA loans. They are insured by the government and just like PMI, there is a fee attached to the insurance. These premiums are also passed to the homeowners. Unlike the PMI in a conventional loan, these fees do not go away after you have paid off a certain percentage of the loan. FHA insurance covers the life of the loan. There is also a 1.75% initial fee for FHA loans, which falls on the homeowner.
VA and USDA loans
These are two different loans that have a 0% down payment requirement and can potentially waive interest fees. Not all lenders offer them, but they are amazing boons for anyone who qualifies.
VA loans are Veterans Affairs loans offered to qualifying military personnel. These are dream loans for anyone who qualifies because they require 0% down payments, no PMI, and the possibility of no interest on the loan at any point. If you believe you are eligible, check with the VA and take advantage when buying your home
USDA loans are federal loans offered on specific rural properties to help the development of these areas. The qualifications for these loans are very strict and tied to geography. With the area surrounding Athens being beautiful woodlands and lush deciduous forests, always check whether the property you are interested in qualifies for this 0% down payment loan.
Help with buying a home
Jenny Reville is a broker, real estate agent, and owner of Reville Realty, LLC. She has more than four decades of experience in real estate and land management. Her expert knowledge and love of nature and the lush forests surrounding Athens, Georgia shows in her passion for helping her clients secure the land, and home of their dreams. She is ready to assist you also.
*Header photo courtesy of Pexels
