I have over $100k in student loans — here's how I bought my dream home with no down payment – Business Insider



mcmansion missouri“20% is an outrageous
amount of money to save.”
pasa / Flickr

Like many young professionals, 31-year-old Brittany Pitcher
thought her dream of homeownership would never quite line up with
the reality of her financial outlook.

Pitcher, an attorney in Tacoma, Washington, earns a good salary,
but a large chunk of her take-home pay goes toward paying down
her debt from law school, not leaving much room to save for her
dream home — especially when most experts recommend coming up
with at least a 20 percent down payment.

“With my law school student loans, I could have never saved 20
percent down for a house,” Pitcher told MagnifyMoney. “Twenty
percent is an outrageous amount of money to save.”

But Pitcher managed to find a more affordable solution, and in
2015 she was able to purchase her dream home for $0 down.

Here’s how she did it:

A loan officer suggested Pitcher look into securing a grant from
the National Homebuyers Fund (NHF), a Sacramento,
Calif.-based nonprofit that works with a network of lenders
nationwide to make the home-buying process more affordable,
offering assistance for down payments, closing costs, mortgage
tax credits and more. She applied and was awarded an $8,000
grant, which covered her down payment and closing costs.

Each lender that works with the NHF to offer downpayment
assistance has different eligibility requirements for borrowers.
In Pitcher’s case, she had to earn less than $85,000 annually to
qualify for the grant. She also had to take an online class
driving home the importance of paying her mortgage.

There were other stipulations, too. She was required to use a
specific lender and agree to a Federal Housing Administration
mortgage with a rate of 4.5%. Since FHA mortgage loans require
only a 3.5 percent down payment, the grant fully covered her down
payment.

But like all FHA mortgage holders, Pitcher soon learned there was
a price to pay for such a low down payment requirement — she had
to pay a monthly mortgage insurance premium (MIP) on
top of her mortgage payment, which added an additional $112 per
month.

With the grant, Pitcher successfully purchased her first home in
2015, trading up from a one-bedroom rental to a three-bedroom
house. And even with the added cost of MIP, her monthly mortgage
payment was still roughly $100 less than what she would pay if
she continued renting in the area.

“When I bought my house, with my student loans, my net worth was
like negative $120,000 or something horrible like that,” says
Pitcher. “Now my house has appreciated enough to where my net
worth is only negative $60,000. It’s been an incredible
investment that’s totally paid off.”

After she moved into her home, she came up with a strategy that
would ultimately get rid of her MIP and secure a lower interest
rate. Within a year, her house had increased in value enough for
her to refinance out of the FHA loan and into a conventional
loan, which both lowered her interest rate and eliminated her
mortgage insurance premium.

Pitcher’s experience highlights how the 20 percent down payment
rule of thumb might actually be more myth than a hard-and-fast
rule.

“Historically, the typical first-time homebuyer has always put
less than 20 percent down,” says Jessica Lautz, Managing Director of Survey
Research and Communications for the National Association of
Realtors (NAR).

According to NAR’s 2016 Profile of Home Buyers and Sellers
report
, the typical down payment for a first-time homebuyer
has been 6 percent for the last three years.

How to get a house with a low down payment

There are plenty of programs out there that can help first-time
homebuyers get approved for a mortgage without needing a 20
percent down payment.

The U.S. Department of Housing and Urban Development, for
example, has a tool where homebuyers can search for
programs local to their area.

“There might be programs there that first-time homebuyers could
qualify for that either allow them to put down a lower down
payment or help them with a tax credit in their local community,
or even property taxes for the first couple of years after
purchasing the home,” Lautz says. “Those programs are available.
It’s just a matter of finding them.”

Case in point: Maine’s First Home Program provides low, fixed-rate
mortgages that require a small, or sometimes zero, down payment.
Similarly, the Massachusetts Housing Partnership, a public
nonprofit, boasts its ONE
Mortgage Program
. The initiative offers qualified homebuyers
low down payments with no private mortgage insurance.

Generally speaking, where low- or no-down-payment loans are
concerned, potential homebuyers have a number of options. An
FHA mortgage loan, funded by an approved
lender, is perhaps the most popular. Folks whose credit scores
are 580 or above can qualify for a 3.5 percent down payment. That
number goes up to 10 percent for people with a lower credit
score. The catch is that you’ll have to pay an upfront insurance
premium of 1.75 percent of the loan amount along with closing
costs.

Veterans, active-duty service members, and military families may
also be eligible for a VA loan, which comes without the burden of
mortgage insurance. They do charge a one-time funding fee, but no down payment is required,
and the rates are attractive.

Christina Noone, 34, and her husband Eric, 33, bought their first
home in Canadensis, Pa., in 2011 with a USDA loan.
USDA home loans are backed by the U.S. Department of Agriculture.
The couple put 0 percent down for a $65,000 loan with no private
mortgage insurance requirement.

“Putting money down makes your payments lower, but this specific
type of loan, designed for rural areas, is manageable,” Christina
says of their $650 monthly payment, which includes their mortgage
and taxes. “I might have liked to wait until we had money to put
down so we could have bought a nicer house for the same payments,
but with zero down, we were able to get into a house easily.”

The biggest downside for Eric and Christina, who own a local
restaurant, is that their house is “a big fixer-upper,”
something the couple hasn’t financially been able to tackle yet.
This is precisely why Steven
Podnos
, M.D., a Certified Financial Planner and CFP Board
Ambassador, stresses the importance of having a three- to
six-month emergency fund before buying a house — especially since
putting down less than 20 percent often necessitates paying for
private mortgage insurance. He also suggests keeping your overall
housing costs under 30 percent of your income. When it comes to
finding a lender, he adds that shopping around is in your best
interest.

“It’s a competitive process,” he says. “I always tell people: get
more than one offer. Go to more than one institution because
different banks at different times have different standards,
different amounts of money they’re willing to lend, and different
risks they’re willing to take.”

Read the original article on Magnify Money. Copyright 2017. Follow Magnify Money on Twitter.

Leave a Reply

Your email address will not be published. Required fields are marked *