Small Down Payment Does Not Mean the Buyer is Not Qualified
October 20, 2014
Low and no-down payment mortgage programs make it much easier for more Americans to fulfill their dream of becoming a home owner.
The problem is some sellers and listing brokers are trying to require a larger deposit and down payment from buyers who have already obtained a valid pre-approval. We certainly understand when a listing broker requests more money down and conducts due diligence to be sure that the buyer is, in fact, qualified for a low or no down payment loan.
We do the same sort of due diligence for all of our sellers. But to insist on more money down even after it’s clear that the buyer is qualified is unnecessary and can even unnecessarily alarm sellers.
Home sellers should feel comfortable that these loans are reliable options. Just because a buyer is using them doesn’t mean they’re not serious buyers or that they don’t have the appropriate funding.
These loans require the buyer’s financial statements, tax returns, and proof of income just like traditional loans.
Here’s Some Information on These Low and No Down Payment Loans:
VA Loans are government backed loans and yet require no down payment.
To be eligible for these loans you have to have served in the U.S. Armed Services and in certain cases the spouses of deceased veterans as well. The requirements of these loans do vary due to the type of discharge from the service (honorable or dishonorable) as well as the number of years served. VA Loans have no monthly PMI whatsoever, and have similar underwriting criteria as FHA.
Another option is a USDA Loan. They partner with approved local lenders to extend 100% financing opportunities to eligible families living in rural areas for the purchase of a home. This loan is funded by the United States Department of Agriculture and also offers a low interest, low down payment for low to middle income families.
FHA loans require as little as 3.5% down and credit requirements for FHA loans are lower than for conventional mortgage loans. There are debt-to-income requirements for FHA loans as well. A debt-to-income ratio is a comparison of your pre-tax income to housing and non-housing expenses.
No Down Payment Doesn’t Mean No Closing Costs
Buyers should also realize that 100% financing with one of these loan options doesn’t mean you won’t have any closing costs. Closing costs can be paid at closing out of pocket by the buyer or the buyer can request a closing cost credit from the seller. Either way it is important that the buyer has a full understanding of the closing costs when they are buying.
Buyers also need to be prepared to have to come up with Earnest Money deposit even if you’ve been approved for a no down payment loan. Sellers and listing agents will insist on a deposit anywhere between 2% and 5% of the purchase price. This can be credited back to you at closing if the deal is structured correctly and the sellers agree.
In addition to this, you will need money to pay for your appraisal and home inspection costs so be prepared!