Over the next couple days we will try to fill you in on everything you need to know about The Bank. Obviously, The Bank is where you will need to borrow the money to buy your new home and therefore it logically follows that you need to know everything about banks. Right?
And, you expect us to tell you everything that you will ever need to know about that mysterious place called The Bank. I know you expect us to explain everything but honestly that is not going to happen, I am convinced no one knows everything about banks.
We can however fill you in and hopefully you will know more than you did prior to reading our blog. If all goes well, we will walk you through several “Rules” about getting a mortgage whereas many of those rules are nothing more than fairytales that have gained credibility over many years. Let’s face it, grandma and grandpa have told war-stories about banks and families have listened, after a while those stories acquire an aura of truth.
First Legend – “Everyone must have at least 20% for a down payment!” Almost half of the population strongly believes that you must have at least 20% down, if not more, to get a mortgage. In Vermont the median home value is just about $200,000. That price has increased almost 5% in the past year and Zillo predicts it will go up another 2.6% in the next year.
So, if you need to have 20% down you will need about $20,000 CASH to put down towards your new home. Obviously that dollar amount goes up as the price of your home goes up.
The problem is that the 20% Rule is really just a fairytale for many Vermonters. Here are some fairly common exceptions to the 20% Rule:
- FHA loans. Federal Housing Administration loans only require a 3½% down payment – that is a far cry from the 20%.
- VA Loans – The Veterans Administration allows Veterans to purchase a home with XERO Per-Cent down. VA Loans allow for 100% financing.
- USDA Loans – the U.S. Department of Agriculture has loans that also allow ZERO Per-Cent down.
- Conventional Loans – yes conventional loans are available with far less than 20% down but, the catch is you then will need to purchase PMI or Private Mortgage Insurance.
And, PMI is where we will begin tomorrow.
What do you think is the best type of mortgage?