In today’s economy, people want to know what is a good investment that is low cost but it also has the highest reward and has the lowest financial risk.
After working with financial experts that are in the “Recommended Professional” section of my main page, They have all agreed that you should never put more than 20% down on the purchase of your home. The more money you are putting into your home, you are actually tying up money in a asset that has the ability to not have the highest return on the investment depending on the sale of the home.
USDA and FHA are two government programs that offer a minimal downpayment.
When most people hear of USDA, they think it only has to do with agriculture and food. However they also have a home mortgage lending department. This program is a true no money down program and there are several options to make the closing cost minimal as well.
Did I mention that there is no monthly Mortgage Insurance?!?
The only downside to this program is the underwriting is stricter because the financing of the program is limited to certain geographical areas. However you will be surprised of the areas that are considered eligible. Another requirement is that there is also an income limitation requiring the total family household income in qualifying.
One of my favorite success stories was a couple that was buying a new, home in the Leander, Texas area. They were able to find a short sale property that is 4 Bedroom and 2.5 bath for under $150,000. When it was all said and done they came to closing writing a check for $400.00 which paid for the appraisal.
Are you wondering why they only had to pay $400.00? Give me a call because it is quite incredible.
My personal favorite program is called FHA… For a homebuyer this program is ideal because you only have to put 3.5% down where as typically you have to put a minimum of 5% down through regular conventional financing. Also, this program does allow options for people that have lower credit scores and that do not meet the conventional requirements. I have been involved in hundreds of these loans and I can honestly say that there is no downside to this program.
Here a scenario that I ran as I am writing this post to help you understand the upfront benefit with the long term gain…
Amy decides she is going to buy a $200,000 home. She has enough money to put $10,000 down plus closing cost. When she met with me she assumed that she should go conventional because she has enough for the 5%. She also assumed that since she is putting more than the 3.5% she should get a better rate.
Upfront Benefit / Low Cost
After looking at the FHA program here is what we came up with… She was saving $3,000 from the closing cost and we were able to get her a 3.831% APR compared to the 4.33% APR that she would be receiving with a typical conventional mortgage. That is a savings of $44.00 a month with a total lifetime savings of $15,840.
Long Term Gain / High Reward
She was so thrilled that she contacted one of my recommended Financial Advisors and he showed her how she can convert that monthly savings into an income generating asset.