Most of today’s first-time Costa Mesa home buyers are aware that they’re no longer tied to strictures laid down in previous eras—especially the one dealing with 20% down payments. For buyers with stellar credit histories, that’s horse-and-buggy material. Last year, the U.S. average down payment was just 12%—but for first-timers, that average dropped to 6%!
Relaxing steeper down payment requirements makes sense for everyone. It expands the field of buyers, so sellers and lenders benefit. But most of all, for first-time homebuyers who would need many years to save up the cash required for a 20% down payment, the advantage of being able to buy sooner (and thus, to begin building equity sooner) couldn’t be clearer. And today, with home loan interest rates scraping historic lows, why wouldn’t everyone rush to buy?
In other words, what’s the catch?
Well, it isn’t a trapdoor-sized catch—more like the delivery charge that’s added onto an online sale item. It’s called “PMI”—short for “private mortgage insurance.” Since the borrower gains their new house without putting nearly as much of their own cash at risk, the PMI payment added each month serves to defray the extra exposure assumed by the lender. Since a large down payment would be lost to a borrower who defaulted on their home loan, smaller down payments make defaults more likely. The PMI protects the lender against that possibility—with the new homeowner required to make the compensating payments.
Those payments (and the insurance) are no longer required once the principal paid on the mortgage reaches 20% of the loan amount. The details are covered in the Homeowners Protection Act. The amount of the PMI payment is determined by the size of the loan, borrower’s credit score, and various other measures—such as being able to show a history of making high rent payments.
The bottom-line question is whether the total monthly payment makes buying less of a bargain—an answer that’s only possible by working out the details. Call us for help doing just that!
We are built on a philosophy of Heritage & Hustle. The L3 is a full service real estate agency with a regional office located in the heart of #CostaMesa, offering a wide-array of custom services to meet their clients’ needs with roots in the community since 1976. It’s L3 mission is to provide trusted, convenient, responsive service to ensure clients enjoy their real estate experience. The L3 was originally formed to offer personal, concierge-level service as an alternative to the large, nationally based real estate companies. From its small beginnings of only two employees, The L3 has grown to a full staff of 25 serving over 300 clients a year. The L3 is not limited to serving just its clients; it is also committed to serving the community. Not only has The L3 donated hundreds of hours to many area charities, they have also received the prestige of being named one of the #toprealestatecompaniesinCostaMesa If you’re interested in #buyingorsellinginOrangeCounty, turn to the experts. Turn to The L3 and let them help you make your real estate buying or selling dreams come true. For more information or to get started on finding or selling your home contact The L3 today at 714-444-4663 or email us at firstname.lastname@example.org