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Down Payments and Private Mortgage Insurance
Some lenders require 20 percent of the home's purchase price as a down
payment. However, many lenders now offer loans that require less than
20 percent down-sometimes as little as 5 percent on conventional loans.
If a 20 percent down payment is not made, lenders usually require the
home buyer to purchase private mortgage insurance (PMI) to protect the
lender in case the home buyer fails to pay. When government-assisted programs
such as FHA (Federal Housing Administration), VA (Veterans Administration),
or Rural Development Services are available, the down payment requirements
may be substantially smaller.
Ask about the lender's requirements for a down payment,
including what you need to do to verify that funds for your down payment
are available.
Ask your lender about special programs it may offer.
If PMI is required for your loan,
Ask what the total cost of the insurance will be.
Ask how much your monthly payment will be when including the PMI premium.
Ask how long you will be required to carry PMI.
Obtain the Best Deal That You Can
Once you know what each lender has to offer, negotiate for the best deal
that you can. On any given day, lenders and brokers may offer different
prices for the same loan terms to different consumers, even if those consumers
have the same loan qualifications. The most likely reason for this difference
in price is that loan officers and brokers are often allowed to keep some
or all of this difference as extra compensation. Generally, the difference
between the lowest available price for a loan product and any higher price
that the borrower agrees to pay is an overage. When overages occur, they
are built into the prices quoted to consumers. They can occur in both
fixed and variable-rate loans and can be in the form of points, fees,
or the interest rate. Whether quoted to you by a loan officer or a broker,
the price of any loan may contain overages.
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