Low Down Payment Mortgages

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  • I wrote this in response to someone else’s essay on Medium.com. I think her name was Sarah Gardner.

Fairly recently, a young woman wanted to purchase a home of her own. She had reasons for wanting a slice of the American Dream. She’d found a home within walking distance of a gym, public transportation and a vegan bakery.

It was a nice home.

She wanted to qualify for a home loan so she spoke to a smiling mortgage banker.

“How much is your down payment?” asked the eager mortgage banker.

“I don’t have one,” said the young lady.

The mortgage banker stopped smiling. Suddenly, he smiled again. “Then you must have been honorably discharged from the armed forces. A VA (Veterans Affairs) loan doesn’t require any down payment. Plus, it allows the seller to pay all your closing costs. You know there are closing costs when you buy a home.”

“I didn’t know that,” said the buyer. “Besides, I wasn’t in the armed forces. I’m not a veteran.”

“Oh,” said the mortgage banker, still smiling. “There’s a title fee, an escrow fee, your homeowner’s insurance, prepaid taxes, home inspection fee, appraisal fee, pest inspection fee, and more. These are things that aren’t paid to the mortgage broker but are a cost of buying property. But that’s still okay. You can get an FHA (Federal Housing Administration) loan. If you take the property value and add the closing costs — you only need three percent of that total. Of course, you should have a little additional money, say two months payments worth — in some sort of savings. Even a retirement account works.”

“I don’t have that, either,” said the prospective homebuyer.

“How about a gift?” asked the mortgage banker. “Your mom, dad, even your grandparents can gift you the entire down payment. FHA says that’s okay. No one else does. Your family does not have to be rich. They just need to have the savings somewhere besides under the mattress. We must document the source of their funds.”

“I don’t have that, either,” said the prospective homebuyer.

“Some areas have grants and special programs,” said the mortgage banker. “You might have to re-think where you want to buy a home.”

“Other than that, “he continued, “Everyone needs some sort of down payment. You see, in the real olden days, everyone had to save up until they had a twenty percent down payment or better. A home buyer worked hard, saved his or her money, and put twenty percent down on a home. That’s how Americans bought into the ‘American Dream’. When a property buyer makes a large down payment, they aren’t much of a risk because so much of their own capital is tied up in the property.”

“That wasn’t very good for first-time buyers, though, so the government began to offer VA and FHA loans. Conventional lenders began to offer mortgage insurance with their loans. All of these required a smaller down payment.”

“What’s mortgage insurance?” asked the prospective homebuyer.

“Mortgage lenders are risk-averse. If you put less than twenty percent down and you default on the loan, who pays? On an FHA loan, the Federal Housing Administration pays. On a VA loan, Veterans Affairs pays. On a conventional loan, when you put down less that twenty percent, every month you pay a premium called Private Mortgage Insurance (PMI). If you default, PMI companies pay for the default. You see, PMI doesn’t protect you, it protects the lender, but your benefit is that you don’t have to put twenty percent down. There are conventional mortgage loans that require as little as three percent down.”

“So I just need a down payment?” asked the prospective buyer.

“No,” said the mortgage banker. “Once you have the down payment, you must have good credit and your income must qualify for the mortgage payment. It doesn’t matter when you were born, what your sexual preference is, which religion your practice, whether you’re disabled or not, or what race you are. If you meet the guidelines, you qualify for a loan. Do you want to talk about it more?”

“Nope,” she said.

The prospective homebuyer went to brunch, where she ordered two pieces of avocado toast, a large vanilla iced latte with oat milk, and gathered her application materials for a Master’s degree in Arts History.

She lived happily ever after.

She paid rent all her life of course, and the rent kept going up.

© copyright 2021 by Terry Light. Terry Light worked in Mortgage Servicing, Mortgage Origination, became a consultant in that industry, created-owned-operated a real estate web site that he sold to a company owned partially by Warren Buffet. He normally writes humor and science fiction.