Welcome to San Diego Blog | November 17, 2011
Down Payment Options and Requirements
Traditionally, 20% of asking price was the standard down payment homebuyers saved toward a new home purchase. In downtown San Diego, buyers with a down payment of 20% can buy any condo in any building in any complex within their price range. Down payments are closely tied to a buyer’s condo options.
But 20% down payments are not always mandatory in purchasing downtown condos. Often times, buyers are ready to move forward with their home purchase with as little as15%, 10%, 5%, or even 3% saved. Buyers may want to prioritize, and be open to condo location, neighborhood, square footage, amenities, etc. before moving forward because not all condos are available to buyers with less than 20% down.
Down Payment Options
Down Payment Requirements can vary depending upon a number of factors as illustrated by the following examples:
• Buyer has saved $18,000 for a new home. Buyer does not have to wait until he/she saves 20% to begin homeownership, and can benefit from an FHA loan with a down payment of only 3.5%, and low interest rates, but available properties will be limited to those condos in FHA-approved buildings. Not all buildings are FHA approved, and the list is constantly changing. In downtown San Diego, there are currently fifteen FHA approved buildings. They are approved for a specified period of time, and require renewal through HOAs. HOAs must meet FHA specific requirements and FHA financing is unavailable in condos in building litigation. FHA approved buildings are located throughout downtown in almost every neighborhood: East Village, Little Italy, Marina District, Cortez Hill, and Columbia. Buyers using FHA financing should be prepared to be flexible as to condo location and neighborhoods.
• Government sponsored “HomePath” financing will move a buyer into a condo with only 3% down. However, buyer’s debt-to-income ratio is a factor, and if it exceeds HomePath’s maximum requirement, buyer’s purchasing power may be reduced by thousands. HomePath financing is possible even with condos in building litigation.
• For the buyer who has 10% of asking price, conventional financing is an option provided owner occupancy in the condo complex is 51% or higher. Lenders also look at buyer’s debt-to-income ratio in this scenario.
• Buyers interested in purchasing condos as investment properties will need a minimum down payment of 20% to 25%.
Can you see the importance of meeting with a lender early on in the process? Often times, buyers are excited at the prospect of becoming homeowners and begin visiting properties immediately. It can be frustrating for buyers spending a lot of time looking at properties outside their price range.
Factors that Affect Down Payments
Owner occupancy in buildings, FHA / VA approved buildings, and building litigation all affect down payment requirements. An experienced realtor can be a valuable resource in finding a lender who can help homebuyers navigate through the complexities of purchasing power, loan types and terms, interest rates, and closing costs.
For more information, please call Margaret (619) 246-8400. I’d like to hear from you.