Low Down Payment Advice

Low Down Payment

How one couple got a home with

only $8,000 dollars down

Who says you need to save up a lot of money to buy a home? Find out how one couple bought their house with just 3.5 percent down.

From Yahoo Homes 7/2/14

Think you need a lot of money to buy a home? Think again. More and more people around the country are becoming homeowners with as little as 3.5 percent down.

Courtney Brunkow, 26, and her husband Aaron, 27, were two such aspiring homeowners. Read on to learn how this young couple was able to make their homeownership dreams a reality with just $8,000 down.

Saving for that $8,000 down payment

Brunkow, who works in public relations, explains that while she and her then-boyfriend Aaron had good credit and decent earnings in 2011, they didn’t have enough saved up to put down 20 percent on a home.

“We had some money saved for the down payment, but not as much as we would have liked,” Brunkow says. How much did they have? Just about $5,000 saved over the course of a year, mostly as a result of good budgeting and saving their tax returns, she explains.

Plus, she adds that both of them worked a second serving job at a restaurant on Saturdays to help put away extra money. They both worked there up until they moved into their new home.

Another saving strategy involved cutting down on one luxury. “We tried to only eat out once a week, which may not sound like a huge sacrifice, but it was quite the challenge for us at the ripe old ages of 23 and 24!” she explains.

By the time they were ready to close on a mortgage, Brunkow says they ended up borrowing about $3,000 from a family member in order to make the down payment, which they successfully paid back in two years.

Qualifying for a mortgage

Brunkow and her husband live in the popular Low Highlands (also known as”LoHi”) neighborhood of Denver, Colorado. When the couple purchased their home three years ago, Brunkow was earning about $27,500 a year. Her husband Aaron was making about $40,000 annually  working in sales in the construction and industrial supplies industry.

While their salaries weren’t exactly impressive, Brunkow says that both of them had good credit and minimal debt, so they were able to qualify for the type of house they wanted.

With that in mind, Brunkow and her husband set out to look for a lender first. “I am fortunate to have several family members that work in finance and were able to provide us with lender recommendations,” Brunkow says.

She adds they ended up using the first lender they talked to and were very happy with the outcome. “He was extremely transparent with us and we trusted his advice. We always felt like he truly had our best interests in mind and came highly recommended by a family member.”

Another thing that helped along the process? Brunkow says they opted to get approval for their loan before they even started looking for houses. Since they didn’t have enough saved to put 20 percent down, their lender recommended an FHA loan. Insured by the U.S. Federal Housing Administration (FHA), FHA loans allow potential homeowners with low income or poor credit to buy a home even if they can’t afford to pay the typical 20 percent down.

“We were able to get a lower down payment [with an FHA loan], and since we are planning on staying in our home for more than five years, the 30-year mortgage was the best option for us,” Brunkow explains.

After the couple provided all of their financial information to the lender, they received a pre-approved FHA loan of $300,000. The application process was smooth, not to mention worthwhile. With preapproval, Brunkow says they knew exactly what their budget was when they started looking for a home.

Buying their home

After some careful consideration, the couple settled on a $289,000 home after just a few weeks of searching.

“We bought a 100-year old, 2,000 sq. ft. brick bungalow with three beds and two baths,” Brunkow explains. “We live in a very popular area, and like many houses in the neighborhood, our house had been bought in foreclosure by a private owner and completely remodeled by the time it made it to us.”

The bungalow is located in the popular Denver Highlands neighborhood where Brunkow grew up and had always loved. Although, historically, the neighborhood has been a bit rough, it was gaining popularity when they moved in, she says. Many developers and house-flippers were buying foreclosed homes, remodeling, and reselling them.

“In the last several years, the area has undergone a complete transformation and is in very high demand,” she adds.

Brunkow adds that the house has a great backyard and a two-car garage, which is almost unheard of with a house as old as theirs. Those two things were a major selling point when they saw the house, she explains.

Because the couple was putting down only $8,000 (and borrowing $281,000), they went with a 30-year fixed loan with a 4.25 percent interest rate. And in June 2011, they closed the deal and signed the paperwork for their new home.

Refinancing to cut down costs

Since the homeowners put down less than 20 percent down on their home, they had to pay private mortgage insurance (PMI), which protects the lender from default.

The Brunkows’ monthly PMI payments were more than $250, raising their monthly mortgage payments to almost $1,800 per month. So it’s no surprise that the couple wanted to get rid of their PMI as soon as possible.

Typically, once homeowners reach 20 percent equity, they can make a request to their lender to cancel their mortgage insurance. However, that’s not the case with FHA loans, which is what they took out for their home.

Instead, the only way to get rid of PMI on an FHA loan is to refinance, which is exactly what the couple did once they reached 20 percent equity in their home. They refinanced to another FHA loan in April 2013, but their interest rate actually went up, not down – from 4.25 to 4.3 percent.

“When we decided to refinance, rates had gone up slightly, but it was still smart for us to refinance to get rid of our mortgage insurance that was over $250 a month,” Brunkow says.

So even though their interest rate was slightly higher, refinancing was still a good move because it lowered their mortgage payments to less than $1,600 a month.

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