Down Payment Assistance
Understanding How Mortgages Work
So, let’s take a step back in time to understand how mortgages work and why a down payment is important. A product created by American banks called a mortgage was created in 1949. Before then, there were no mortgages and you would either rent or buy a home in cash. Bear in mind that the average home cost was $7,000 in 1949. Basically, what the banks said was that if a buyer was willing to put down 20% to buy a home, they would make a loan for the remaining 80% of the purchase price. Why did they pick these numbers? Well the thought behind these ratios is that if a buyer was unable to make their mortgage payments and went into foreclosure, it would be easy for the bank to list the home on the market and sell it at a discounted price and still be able to recover their 80% portion. They picked a safe number where it made lending money less risky. Historically, homes have rarely dropped 20% in value so this number created less risk for the banks. So, let’s fast forward to the late 1960’s or early 1970’s, during this time inflation was on the rise so homes went up in value significantly. The cost to build a home was more and everything was going up in price. At this point in time homes were selling for about $23,000 so finding 20% to put down on a home was getting a bit more difficult.
What is PMI?
In 1969, PMI was created. What is PMI? It stands for Private Mortgage Insurance. This is an insurance product that was created for homebuyers and banks so that if a buyer couldn’t come up with the full 20% down payment, the banks would allow a lower down payment if the buyer could secure PMI. Let’s say you buy a home and only have 10% for a down payment. The PMI company would simply charge you a monthly payment to cover the other 10% in case you defaulted on your mortgage. If you went into foreclosure, the PMI company would simply pay the bank the other 10%.
Down Payment Assistance Programs
Well here we are about 50 years later and homes as of December 2015 have an average sales price of $358,100. Trying to come up with 20% for a down payment is not only difficult to do but almost seems impossible. For homes to sell in today’s real estate market, the Government as well as 3rd party non-profit companies came up with creative solutions so that people could afford to buy homes. Here at Equinox Home Financing, this is our bread and butter. Most lenders do not want to offer these loan programs because they are difficult to do, take longer, require more paperwork, and require a lot more buyer education but we have embraced that here at Equinox. It has taken us years to understand the programs and to get good at closing these loans. Today we offer city, county, state, and national down payment assistance programs. Just to name a few, here’s what we have:
- CalHFA Down Payment Assistance- down payment is in a form of a 2nd mortgage with 0% interest
- Platinum Program- 5% grant for the down payment and closing costs
- Daisy Program- Up to $15,000 for the down payment and closing costs
- 1% down- Conventional and FHA program where you get a 2% grant and only need to put 1%
Again, we have over 30 programs available but these are some popular programs. Inquire today to find out what you qualify for.