Real (Estate) Talk: May

Realtors Brad Moore and Alison Maguire of Keller Williams Real Estate’s Moore Maguire Group take a look at the borough’s booming market.

The biggest misconception we encounter is from folks who think they need to save 20% before they can buy, but the reality is that there are many options that will allow you to purchase a property with much less.

Buyers who put down less than 20% are often faced with an insurance payment to secure their loan. Known as private mortgage insurance (PMI), many institutions charge a fee of around 1% . So, say you only save up about $10,000 to buy a $250,000 home. You could purchase it with as little as 3.5% down, and your mortgage would have an added PMI fee of around $200 tacked on each month.

There are also options that enable a buyer to avoid those fees. Rather than charging a PMI, these lender-specific loans charge a slightly higher interest rate — usually between a 0.025-0.0125% increase. This almost always amounts to less than you’d pay in PMI, and it comes with added tax benefits: you can deduct up to $10,000/year in mortgage interest from your primary residence.

The first such program, the Community Reinvestment Act, is developed to help banks meet the credit needs of low- and moderate-income neighborhoods as a way to facilitate positive growth in those areas. Each property needs to be analyzed based on census data, but if the home qualifies, we can help you purchase with as little as 3.5% down and no PMI.

We’ve also helped owners secure conventional loans with 5% down. While not confined to specific areas, there are still qualifiers, primarily related to finances. If you only put down 5%, you’ll need a minimum credit score of 640 and a maximum debt-to income ratio of 43% to avoid PMI. So a person earning $50,000/ year would need to be making payments — including mortgage, auto, student loans, etc. — totaling less than $1,800/month.

For folks interested in bigger investments, we’ve worked to secure jumbo loans — any where the amount borrowed exceeds $484,350 — with as little as 10% down (and no PMI). Typically, loans of this size require 20%, but if you have a credit score above 680, you have options that allow you to put down less.

Another situation we often encounter is with someone looking to move, but most of their capital is tied up in their home. These buyers worry about first selling before buying their next place. However, we often suggest they look into a home equity line of credit (HELOC), which lets you borrow against your home, often up to 85% of its value, and use it as a down payment to secure a new property before selling your old one. Qualifiers and fees are involved, but often these costs amount to less than that of storage, temporary housing and moving twice. Consider the added convenience, and a HELOC quickly becomes an attractive option.

Of course, the decision of how much to put down relies on a large number of factors, so we always suggest that you examine all your options. Just because you can put 3.5% down and buy a property doesn’t always mean it’s the best option for you. Still, when it comes to the question of, “Do I need to put 20% down?,” the answer is clearly, “No.”