1. Low down payment options may be available that may help reduce upfront costsSome people have the misconception that a 20% down payment is required for a home purchase, when in reality, many home loan options may exist that could potentially put consumers into a home with a low down payment of just 3%. In fact, 77% of non-cash, first-time homebuyers in 2018 purchased a property using a down payment of less than 20%, according to a study by the National Association of Realtors.
“It’s not uncommon for first-time homebuyers to have questions for real estate and mortgage professionals about how down payments and mortgages work,” says Donna Deaton, Vice President of RE/MAX Victory in Liberty Township, Ohio. “Many homebuyers are shocked that they may be able to find loan options for as little as 3% down. Then they wonder why they didn’t start looking for a home sooner.”
Deaton, who says homebuyers should work with a mortgage professional of their choice, adds, “There may be options out there for almost every type of homebuyer. But buyers should prepare and do their research.”
According to RE/MAX Agent Cande Green, homebuyers may be surprised how much money they can keep for emergency savings – instead of putting it toward their down payment – without significantly impacting their monthly mortgage payment. Recently, the agent with RE/MAX DFW Associates in Texas had two agents do just that.
“Putting less down will make a difference in their monthly mortgage loan payment, but it may not make a substantial one,” Green says. “If paying slightly more each month means having peace of mind in case of an emergency, I think it’s smart.”
2. Price, closing time and repairs may be up for negotiationRarely does everything line up perfectly in a listing. The price may be slightly out of reach, the home may be stunning except for the ancient carpet or a buyer could need more time to wrap up their current living situation before they can move. That’s where negotiation comes in, and it’s one of the many benefits of working with an experienced real estate agent.
“Looking for the house is just one step,” says Crystal Jenkins, a Sales Associate with RE/MAX Downtown in Orlando, Florida. “Once you find a house you like, who’s helping you after that? A real estate agent is there to help you negotiate the best terms in purchasing a home.”
In addition to price, an agent can help negotiate closing costs and any repairs or updates that need to be made to the property before the sale is final. And – especially important in today’s fast-changing world – agents also may be able to negotiate more flexibility in the contract.
Some agents have been helping their clients add what can be referred to as a “Covid Clause” or “Coronavirus Clause” to their contracts. These addendums allow for extensions or special accommodations due to unforeseen circumstances arising from the novel coronavirus. What is included in the clause will differ based on each scenario. Many real estate associations in the U.S. and Canada provide templates for agents to refer to, but it’s important for buyers and sellers to discuss any clauses with their agent and perhaps even a legal professional of their choosing before adding to their contract.
3. Private mortgage insurance may eventually be removed (and may not be required with a VA Loan)While many loans with a less-than-20% down payment will require private mortgage insurance (PMI) to be added to the monthly payment, this often can be removed once the debt to income (“DTI”) ratio on the loan drops below 80% or as part of a refinance where the new DTI is less than 80%. The exception is with an FHA loan, where the only way to remove the PMI payment is by refinancing to a conventional loan.
VA loans come with several benefits not found through other funding options. For example, eligible veterans may be able to use a VA loan to purchase a home with no money down. And VA loans don’t always require private mortgage insurance (PMI), which is typically necessary on traditional loans if a down payment is under 20% of the home’s cost, because the U.S. government is guaranteeing a portion (25%) of the loan against the risk of default.
According to Mario Negron, Broker/Owner of RE/MAX Pioneers in Cypress, Texas, when it comes to VA loan benefits, little counseling may be offered to veterans once they’ve returned to civilian life. VA financing for a home may prove to be “pretty much America’s best loan” for borrowers who are eligible.
“If the buyer’s agent is able to negotiate for the closing costs on a VA loan to be covered by the seller, the buyer may not even have to bring any money to the closing table,” Negron says.
Every journey to homeownership will be different. Fortunately, first-time buyers don’t have to sort through the variety of funding and other options by themselves. Experienced real estate agents and loan officers are available to help guide them through the complex real estate process.
As Jenkins points out, buying a home is not a simple DIY project – it’s important for homebuyers to work with a trusted advisor.
“This is the biggest financial transaction of your life, why would you want to do it on your own?” asks Jenkins. “You need to find somebody you trust.”