Buying a Home with a Low Down Payment

by Bevin Bermingham on February 15, 2015

When purchasing a home you will typically pay for it using two main sources of money. One is the amount you borrow from a bank (your mortgage) and the other is saving or acquiring the money for your down payment (this is the money you invest into the property). The standard/ideal amount of down payment one would have to buy a home is twenty percent.

With the high cost of homes in New York City, that twenty percent figure can make home ownership seem like a pipe dream. However, there are a few different ways of making up the difference. Many lenders offer Private Mortgage Insurance (PMI), which is an insurance policy you, the borrower, pay for to insure the mortgage lender that you’re not going to default on your loan. PMI comes with it a pretty hefty up front cost and additional monthly payments.

There’s a really great piece about PMI on New York One last week, available at this link.

The New York One post mentioned that 2015 is going to be a great year to buy a home because it is likely that interest rates will begin to rise for the first time in years. Locking in a low mortgage rate, even if doing so means you haven’t saved as much of a down payment as you would have liked, may end up saving you money in the long-run.

If you are a New York State resident and looking to purchase your first home, the State of New York Mortgage Agency offers several first time home buyer programs that you may qualify for, including one for low-income purchasers and folks buying a fixer upper.

One of my clients asked me recently to explain what we had to do once the contract was closed… really. I call this part of the process the “back burner” because there is a lot of waiting involved. Waiting for your loan to be approved by the lender, both you as a borrower and the property under contract as collateral. It’s also a waiting process for the title report to be returned from the title company, telling us what liens need to be cleared by the seller in order to convey “clean” title. (For example, outstanding mortgages or environmental control board liens would need to be resolved before we could close.)

Here is the list I provided to my client about how the mortgage process works, roughly, from when the signed contract is submitted to the lender to closing.

Submit initial application with contract of sale.

Order appraisal.

Your loan rep/mortgage broker asks you for lots of documents to prove your income and rental history.

Underwriting reviews your application, the appraisal and any other documents relating to the condo/coop they ask for (sometimes offering plan, budget, etc…).

They ask for more documents (they always ask for more).

They issue a mortgage commitment. If you are denied a mortgage commitment, this is what triggers the contingency clause in the contract of sale.

Whatever contingencies are asked for as part of the commitment (sometimes it’s even more documents, or updated versions of documents you’ve already given) need to be satisfied. Occasionally even the appraisal needs to be submitted.

Then the loan is “clear to close.” Once we have a clear to close, then we schedule the closing. Sometimes, this is a week or two before we are closing. Most of the time this is the same week or even a couple of days before we want to close. (And sometimes we delay the closing because we’re waiting for the clear to close.)

As for things you should be doing, make sure you keep the ball in your loan rep/mortgage broker’s court at all times as much as possible–when they ask for a document get it to them as quickly as you can.

In the meantime I am ordering the title report and waiting for the mortgage commitment. Once title comes in I’ll review it, find out from the seller how they will address any blemishes on title (things they will need to pay or resolve prior to closing).

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