Across America the desire among first time buyers to own a first home seems to increase by the day.
The investment value of residential property continues to power ahead in our neighborhood and many other regions, creating double-digital growth rates across the US.
New buyers wanting a piece of the action is no surprise. They face one big barrier to entry – the 20% deposit that lenders want to see before considering a loan application.
But is that really a hurdle you’re obliged to jump? Definitely not.
As an experienced real estate agent, I work with many first-time buyers who’ve managed to secure pre-approval for their loans without having to save so much money.
Yet, the 20% myth continues. A National Association of Realtors survey finds 10% of buyers think they need more than a 20% down-payment. More than a third believe there’s a requirement to save between 16-20%.
If you plan your finances, you can prove the 20% deposit is more myth than fact.
Below, I’ve listed a few key facts about saving and applying for a mortgage so you can pre-approval happening and go home-hunting!
- The 20% down-payment is a long-standing benchmark to help protect the banks from lending too much against a property. It’s unlikely a property would ever need to be sold at a discount deeper than 20%, so the banks’ money should be safe.
- With interest rates at record lows right now, and home prices for houses, apartments and condos high, you’ll likely want to borrow as much as possible to make the most of the opportunity.
- Many loan offerings offer a pathway for first-time buyers who have savings of 10% or less. Talk to a mortgage broker to track down those deals. Your mortgage broker will help pick the offer that’s best for you.
- Have you ever heard of piggy-backing? This is where you take two loans to avoid the 20% deposit challenge. Your first loan is for 80% of the price of a property, and the second looks after the remainder. Again, talk to your mortgage broker about whether that’s the right option for you.
- You can dodge the 20% requirement with Private Mortgage Insurance (PMI). This policy protects the bank in the event you default. While it’s not cheap, payments can be spread across a year and it’ll give you access to more cash.
- Go check your credit score. Lenders and insurance companies that issue PMI will want to make sure you have a track record of paying your debts and knowing your credit score and taking steps to improve it before you start home hunting is always a good decision.