Most homebuyers are familiar with the standard down payment on a house. All this means is that they have to save up at least 5% of the purchase price well before buying the home. For some, saving up that much money can be a daunting task, so they choose to forgo purchasing and go on renting. However, there is an alternative for those who may not be able to save up that lump sum in a manageable amount of time. This alternative is called a flex down payment.
Flex down payments enable potential homeowners to borrow the money for their down payment. This can be through several sources such as a credit card, loan, or line of credit. Like any borrowing arrangement, the lender will determine if you can afford that additional debt on top of mortgage payments and other expenses.
While flex down payments can be an attractive option, it is important to note that they are not the best option for everyone. To qualify, a person must have an excellent credit score, a sound credit track record, sufficient proveable income, stable employment, and a reasonable debt ratio. Even if you do qualify, it is important to stick to a strict repayment plan to avoid any potential risk incurred through borrowing.
Unlike a standard down payment, the flex option doesn’t give you any equity. Consider the fact that you would be borrowing over 104% of the home’s value. This means you will not be able to sell your home if its value plummets because you can’t pay off your mortgage. In addition to this, borrowing your down payment instead of saving up the money leaves you with little safety net if you lose your job or get sick.
Both standard and flex down payments play important roles in homeownership. Make sure to take advantage of the one that will offer you the most benefit! As your local mortgage broker, we will help guide you to the best option for you! Learn more about down payments by contacting us today!
Source was absolutely great to work with - went above and beyond to help us get everything done when buying our new home. Highly recommended!! Chad and Jenelle Richards Jan 09 2013
Chad and Jenelle Richards
Added January 23rd 2013
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