One of the biggest obstacles for a first time homebuyer of Main Line Real Estate is the down payment requirement. The most commonly used mortgage product to help first time home buyers put as little down as possible is the FHA loan. It requires a 3.5% down payment that can come from the borrowerâ€™s savings, 401K, gifted from a family member, grant, or even a gift from their employer. You can ask the seller to contribute up to 6% towards your closing costs through whatâ€™s referred to as a Seller Assist.
However, here is an under-utilized idea regarding a Seller Assist. Many borrowers donâ€™t realize that FHA charges two types of mortgage insurance: the up-front MIP (mortgage insurance premium) equal to 1% of the base loan amount which you can finance into your mortgage/loan amount. The second mortgage insurance is included in your monthly payment, until you reach the required equity amount, which is usually about 10 years based on a minimum 3.5% down. This can be a hefty increase to your monthly payment!
If you have an additional 1.5% or a total of 5% down, you could qualify for an option where the seller, through a Seller Assist, can buy out your monthly mortgage insurance payment saving you substantial amounts on your monthly mortgage payment and actually increasing your purchasing power.
See my blog for more detailed information regarding this strategy.