It’s a jungle out there
The home buying market is fierce and has been for most of the past two years. A severe lack of inventory has increased bidding wars and is driving home values skyrocketing at unprecedented rates.
It can seem daunting if you don’t bring an all-cash offer to the table. But despite the challenges, we spoke with five experts who said buying a home with a low down payment or down payment assistance (PAD) is both doable and realistic.
You just need to improve your profile in other ways, like reducing your closing time, especially as a first-time buyer.
Can a small down payment really get you a home?
Yes, it is difficult to convince a cash buyer. But it is difficult regardless of the amount of your down payment.
“The down payment is only part of the equation. This should not be a detractor or put [the borrower] in a lesser position with their offers.
—Todd Pankratz, Senior LO and Branch Manager, Wallick & Volk Mortgage
If you’re a low-income borrower or only have enough money for a small down payment, fear not. The old, outdated saying that you have to pay 20% of the purchase price of a house is just that; old and obsolete.
Todd Pankratz, senior loan originator and branch manager at Wallick & Volk Mortgage
“If the borrower’s review is well qualified, fully pre-qualified or pre-approved, then the down payment is only part of the equation. This should not be a detractor or put them in an inferior position with their offers.
Almost every low-down payment homebuyer has a type of loan that’s best for them, including options you probably haven’t heard of. If your path to home ownership starts with a low down payment, speed might be the best way to improve your bid.
Tips for succeeding with a small down payment
While it’s possible to buy with a small down payment, the experts we spoke with advised you to always take the strongest possible position by improving your offer in other ways, if possible. It could help you get ahead of other bidders – potentially with larger down payments – in today’s competitive market.
LaTisha GrantExecutive broker-manager of TAS Realty Group
“I tell my clients all the time to offer the best you can. Then you have to make everything else more attractive to try to get it accepted. Be as quick as possible with the closing time, reducing these closing days and inspection time.
Reduce your option period and make an initial underwriting with the lender to reduce the time to closing. On top of that, going conventional would help in doing an FHA.
Many buyers forego the inspection altogether, but it’s not something I recommend. There are also plenty of appraisal waivers, but again, if you’re a buyer with a low down payment, you certainly don’t have the cash to bring to closing to make up for an appraisal that’s lower.
Maybe even pay for your own survey because in most situations it’s $450 and that’s something they can afford. And don’t ask the seller for a contribution, of course.
Dionne Hendersonproduct manager at Mid America Mortgage
“Stay resilient, organize your documentation well, and put your best foot forward. Make sure you don’t spend frivolously and your funds stay stable. We don’t want to see new cars in the driveway and keep your debt from weak credit card. You don’t want last-minute issues with other aspects to delay closing your home.”
Improve your position with down payment assistance
Down Payment Assistance Programs (PADs) are another way to bolster your offer to a seller without further draining your bank account. DPAs come in four main forms – grants, second mortgages, deferred loans and forgivable loans – are run by the government and vary by location.
“Even if you have some money saved, there’s no downside to looking at DPA options, as it might put you in a better position in the market.“
-Todd Pankratz, Senior LO and Branch Manager, Wallick & Volk Mortgage
Although many DPA programs aim to help specific groups, they are not exclusively aimed at first-time buyers or low-income buyers. However, you still need to qualify for these programs and there are best practices to follow.
Todd Pankratzsenior loan originator and branch manager at Wallick & Volk Mortgage
“It’s called down payment assistance, but sometimes it’s used to add to what you already have or sometimes it’s used for closing costs. Even if you have some money saved, there is no downside to looking into DPA options, as it could put you in a better position in the market.
Sean MossExecutive Vice President of Products and Operations at Down Payment Resource
“Most of these programs are not much different from qualifying for a mortgage. They have minimum FICO requirements which usually start at 620. You must be income and credit qualified. And there are income or purchase price limits, which can be surprisingly high or flexible.
Many down payment assistance programs require you to complete a home buying education course. This can be done up to a year – and sometimes more – before signing a contract and buying a house. It’s a great way to meet a requirement early on so it doesn’t become a delay. It also helps potential buyers learn about the home buying process and the obligations and responsibilities involved in home ownership.
Work with loan officers who are familiar with these programs. Not all lenders participate in DPA, and not all participating lenders offer all of the programs available in their market. Look at your public housing finance agency’s website, they all publish a list of participating lenders and many publish a list of their top producers”
Be creative in your home search
With housing supply limited and competition so strong, buyers need to think outside the box more than ever.
In the search for your next home, this means broadening your search geographically or by property type.
LaTisha GrantExecutive broker-manager of TAS Realty Group
“We’ve been working on changing our perspective with buyers and including entry-level properties like condos and townhouses. We also review non-traditional listings, like those offered by the city or county, and even work with Houston Habitat [for Humanity]. And it helps you get your offer accepted because they operate on a first-come, first-served basis.
The bottom line
The current real estate market is difficult to navigate, but is not expected to change anytime soon.
Buying a house, even without betting a lot, is both realistic and doable, especially if you improve your bid by following the tips listed here. And remember, timing is everything.
Jon MeyerLending Expert from The Mortgage Reports and Certified MLO
“I find from my experience that if the total purchase price is the same, the lead time is more important than the amount the buyer has for a down payment.”
If you’re ready to buy a home, contact a local lender who works with low down payments or DPA. They can tell you what’s available and what works best with your set of circumstances.
The information contained on The Mortgage Reports website is provided for informational purposes only and does not constitute advertising for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent company or affiliates.