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Can You Afford to Buy a Home?
Written by MISS Contributor Misa P.
Am I the only one re-evaluating my lease vs. purchase home situation? After just signing the fourth year on my lease, which by the way, has just been raised by $110 a month, I am on a serious mission to research if I can afford to buy a home.
If you ever started the home purchasing process you have probably heard this line before, “It has never been a better time to finance a home.”
I reached out to Tim Johnson, President & Mortgage Broker of Nationwide Mortgage Advisors, who cranked out some numbers to see if that statement is true.
For a primary residence purchase, Tim says you can buy a home with as little as a 3.5% down payment (up to a certain purchase price), but you need at least 15% down to avoid mortgage insurance. You can also buy a vacation home with as little at 10% down (and rates are usually the same as for a primary residence), and an investment property requires 20% down. Low income buyers can attempt to qualify for their respective counties BMR (below market rate) properties by signing up with their county office. This allows them to qualify for homes that have a purchase price substantially below market rates.
Tim gave us a few buying scenarios below that assume good credit with both low down payment options and 20% down with no mortgage insurance. He advises that rates change and to be aware that multiple factors will influence rates including loan-to-value, credit score, loan amount, type of property, conventional v. FHA, etc., so it is best to have a pre-approval completed and allow a mortgage professional to provide specific advice and pricing for your specific situation. Keep in mind these numbers are purely hypothetical and you’ll need to talk to a professional before making any financial decisions.
Purchase Price
$250,000
20% Down Payment
$50,000
Loan Amount
200,000
Interest Rate
3.375%
Points 0
Loan Program 30 year fixed
Monthly Loan Payment
$884.19
Estimated Monthly Property Taxes 260.42
Estimated Monthly Insurance
$60
Total Monthly Housing Payment $1,204.61
Do you still think you can’t afford that home because you don’t have that $50,000 in the bank? Let’s take a look at this scenario with as little at 5% down.
Purchase Price
$250,000
5 % Down Payment
$12,500
Loan Amount
$237,500
Interest Rate
3.500%
Points 0
Loan Program 30 Year Fixed
Monthly Loan Payment
$1,066.48
Estimated Monthly Property Taxes $260.42
Estimated Private Mortgage Insurance $116.77
Estimated Monthly Insurance
$60
Total Monthly Housing Payment 1,503.67
Thinking about buying?
Tim Johnson, President and Mortgage Broker at Nationwide Mortgage Advisors in Novato, CA, clears up the home buying process for us:
Mortgage Insurance:
Mortgage Insurance can be paid up-front as a one-time fee, paid in the form of a higher interest rate, or paid monthly. The insurance protects the mortgage lender in the event of default, then they are paid a certain amount of money, so they don’t lose money through the foreclosure process.
What if I’m buying a vacation home – could that qualify for 10% down?
Yes, you can buy a “vacation home” with 10% down, even if you rent your primary residence.
What is BMR?
BMR (Below Market Rate) properties are properties designated by the local county housing authority that are purchased significantly under their market value. In order to be eligible to purchase, you need to fill out the housing authority’s qualifying paperwork, which primarily just requires that you make less than the median income amount for the respective county. The waiting list for these properties can be quite high, especially in high value county’s like Marin and San Francisco.
How do you qualify for a low down payment?
In order to qualify for 3.5% down FHA loan, a borrower is required to have a credit score of 640 or higher, and the loan amount is capped by county limit (most Bay Area counties are $729,750 loan amount or $756,000 purchase price). A borrower can also qualify for a 5% down payment non-FHA loan, with a 620 credit score, but the loan amount is capped at $417,000 or a purchase price of $439,000.
