What to do when you have less than 20% down payment

I get a lot of questions from members about down payments and how much they will need.  Typically, 20% of the purchase price is the recommended standard, but there are circumstances where that might not be possible or it may be in a homebuyer’s best interest to put down less than 20%.   In today’s post, I’d like to discuss an option for people that wish to put down a smaller down payment.

There is a new mortgage product called “CU Promise 90” that is being offered by select credit unions in Maine, such as Ocean Communities.  With CU Promise 90, you do not need Private Mortgage Insurance (PMI) as long as your down payment is 10% of the sale price. Normally PMI is needed if you financing more than 80%, but now you can keep your hard earned money in your savings account with your favorite Credit Union!

The CU Promise 90 program is designed so that you can put less money down and still have the lowest monthly payment available.   If coming up with a 10% down payment might still be difficult, the CU Promise 90 Program also allows for gift funds to be used as your down payment.  

How much house payment can I afford?

Here is a simple calculation to help you find out how much of a house payment you can afford.

a. Gross Monthly Income                    __________

b. Multiply by .36                                   __________

c. Other current monthly bills          __________

d. Subtract c. from b.                             __________  

Line d shows your available monthly housing total.

Please keep in mind that your available housing expense needs to include your monthly Principal, Interest, Taxes, Insurance, and PMI* obligations.

As a homeowner you will also want to make sure you have set aside reserve funds for times in which you need to replace something in your new home, or even for those long winter months where you will need fuel to heat your home.

* - PMI stands for Private Mortgage Insurance, and is needed for any Real Estate Lending Transaction where the loan amount exceeds 80% of the current market value of the property.  This monthly premium is paid to a Mortgage Insurance Company to supply coverage to satisfy the Lender in case of default on your loan. 

Earnest money- when to use it & how not to lose it

by Denis Knox

Last week I mentioned “earnest money” as one of the expenses that you should plan on when saving money to buy a house.   Here is a little more information on earnest money. 

When you make an offer on a home you are asked to give about 1% - 2% of the offer in cash right away.  This cash is called earnest money and shows that you really are serious about buying the house.  Before signing a contract for the house, make sure the contract includes wording that will let you get your earnest money back if something happens and the sale falls through. Remember: 

• Always read the contract your real estate agent gives you very carefully 
• You can often a change a contract before it is signed- but not after 
• Do not sign anything you are not comfortable with.  If you have questions, ask your real estate agent before you sign.