BY DESTINY MATEO
In a significant development in the world of home financing, prospective homebuyers now have an alternative to the traditional and ideal 20% down payment. This new program, designed to help individuals avoid mortgage insurance fees, is slowly being welcomed into the world of real estate and so far, Cross Country Mortgage is confirmed to be offering this program to their clients.
This new development allows potential home-buyers the opportunity to put 15% as a down payment rather than 20%, without having to pay additional fees for private mortgage insurance.
According to Investopedia, Private mortgage insurance is a form of insurance that a borrower may need to purchase when obtaining a conventional mortgage loan. PMI is typically mandated by most lenders if the homebuyer’s down payment is less than 20% of the property’s purchase price. This is primarily because when the borrower’s down payment is less than 20% of the property’s value, it results in a loan-to-value ratio of over 80%, which is considered a higher risk profile for the lender.
Jarek Kwiatowski, a senior loan officer from Cross Country, expressed his enthusiasm for the initiative, saying, “This is great news for people who have been struggling to save up that dreaded 20% down payment. Now, some can put 15% down, which avoids them having mortgage insurance added to their monthly payment, allowing them to not take on additional fees.”
However, there are specific eligibility requirements for this program. To qualify for the 15% down payment option, applicants must have a relatively high minimum credit score of 740. Additionally, this program applies primarily to 1-2 family homes and condominiums and the debt-to-income ratio should not exceed 43%.
Traditionally, the 20% down payment has been the goal for homebuyers, as it helps them avoid additional costs associated with mortgage insurance. Still, for many prospective buyers, saving up such a substantial amount can be extremely difficult. In addition to the down payment, buyers have to keep in mind other expenses, such as closing costs, repairs, remodeling, furnishings, emergencies, and other savings needs.
Rafael Reyes, another loan officer from CCM, mentioned how he strongly believes that programs, like the 15% down payment program, are a stepping stone to a better financial journey for those who may not be ready for that 20%. “Why in the world would someone want to take on paying an extra $200-300 a month all because they only had enough to put 10% down. That money adds up quickly.” says Reyes.
Lenders say it’s essential for interested parties to carefully assess their eligibility and consider their financial situation before taking advantage of this new option.