How Much Money Do I Need For A Down Payment on a San Francisco Home?
Austin Klar, a San Francisco real-estate agent and former lawyer, breaks down the 20% down payment myth. First-time buyers put down about 6% on average. He walks through five mortgage programs that allow down payments as low as zero, each with different credit score requirements and PMI rules.
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Everybody's heard that one of the best ways to build generational wealth is through real estate. But did you know that one of the biggest barriers to owning property is actually completely made up? And I'm talking about the rule that says you need 20% down to buy a house. That is completely wrong. And in this video, I'm gonna break down 5 different mortgage products that allow as little as 3% or even 0% down. What's up everyone? This is Austin Klar, your lawyer turned real estate agent and real estate developer in San Francisco. I've lived in multiple neighborhoods throughout the city, giving me in-depth firsthand knowledge of what it's like to both live and work in San Francisco. If you're thinking about buying or selling a home or you have questions about the market, definitely reach out to me. My contact information is in the description below. I will personally answer every call, every email, every text, and I would be more than happy to help you. And if you like videos just like this, please consider subscribing to my channel and don't forget to click the bell so you're alerted every single time I post a video. All right, so this video is all about busting the myth that you need 20% down to buy a home. I have no idea how that myth started. I've certainly heard it a million times. I don't know where it came from, but it's completely not true. I think it's really important that people understand this because a lot of people want to own property but think they can't, but they're— in reality, they're actually a lot closer to achieving that goal than they think. Believe it or not, the median down payment hasn't been 20% since 2005. And among first-time home buyers, it's actually around 6%. So that rule really has no actual basis in the data. Are there benefits to putting down 20%? Yes. And that'll be a subject of a different video, but you do not need 20% down to buy a home. Now, an important caveat before I get into it is that not every loan type that I discuss is going to be available to every single home buyer in every single situation. There are ones that are only applicable to certain people. There are There are also dozens of products that I don't discuss in this video that also might be available. So bottom line is when you're ready to take the step toward homeownership, it's really, really important that you talk to a trusted lender who works locally in your area, who knows of what programs and products are available. And if you don't have one you already know and already trust or are already working with, definitely reach out to me. I'd be more than happy to refer you to somebody. All right, the first loan I wanna talk about that doesn't require 20% down is the FHA loan, the Fair Housing Administration loan. These loans are backed by the FHA and require only 3.5% down if you have a credit score above 580, and they're gonna require 10% if your credit score is 500 or above. The FHA loan has among the most friendly qualifying standards of any loan type, making them a, a great product for first-time home buyers. But it is available both to first-time home buyers and non-first-time home buyers. And by the way, when I use the term first-time home buyer for purposes of talking about mortgages, it doesn't mean that you're literally buying a home for the first time ever. The term first-time home buyer in mortgage parlance basically means— You're— you haven't owned a home or a stake in a home in the last 36 months. So you could have owned a home, let's say in 2010, sold it in 2013. Now it's 2023, you're getting ready to buy again. Even though you've owned a home a decade ago, you're considered a first-time home buyer for purposes of qualifying for some of these loans that might only be available to first-time home buyers. Okay, back to FHA loans. Because these are government-backed, they do provide some of the most flexible underwriting standards compared to other loans. So it is a lot easier to qualify for an FHA loan than certain other loan products. Now there is a catch because you're only putting down, for example, 3.5% if you're putting the minimum amount down and have a good enough credit score, you are going to have to pay private mortgage insurance as part of your monthly payment. What's the point of that? It's to protect the lender against a potential default. So when people only have a little bit of equity in a home, those are the people that are most likely to default on a mortgage. So the FHA loans require you to have mortgage insurance in place to protect the lender against that possibility. Now most mortgages require mortgage insurance if you don't put 20% down. So it's not something that's unique to FHA loans, but one thing that is unique is that the mortgage insurance for an FHA loan is not cancelable. The last thing I wanna say about FHA loans is that there are loan limits in higher cost neighborhoods like San Francisco. The loan limit is about $1.08 million. That means that the FHA loan is not necessarily going to be available on every single property if you need more than $1.08 million loan to close. Second option is the conventional 97, which lets you put down just 3% on a home. The downside to that, you know, versus an FHA loan, for example, is that there are higher credit scores required to qualify for that conventional loan. For an FHA loan, you need a 580 credit score or 500 for a higher down payment. For a conventional loan, you need a 620 credit score. And just like with an FHA loan, you're gonna have to pay for private mortgage insurance if you're putting less than 20% down. But one advantage of conventional loans versus FHA loans is that your private mortgage insurance is cancelable once you reach 20% equity of your home. So you've been making payments over time, over time, and now you've, you've made enough equity payments where you now own 20% of your home. So once you hit that 20% threshold, you can cancel your private mortgage insurance. So your monthly payment goes down. With an FHA loan, you can't cancel that private mortgage insurance. It's going to remain in place for the life of the loan. Another limiting factor of conventional 97 loans is you're going to need a debt-to-income ratio of 43%, meaning your debts can't be more than 43% of your gross monthly income. And then unlike FHA loans, there are no income limits for this type of loan, but but there are income limits for the next ones that I'm gonna talk about. The Fannie Mae HomeReady loan is one of those loans, and it was really designed to help multi-generational families get homes. To qualify for a Fannie Mae HomeReady loan, you can't make more than 80% of your local area median income. So if you make more than that, you're not gonna have a, a Fannie Mae HomeReady loan available to you. You're gonna have to go another route. Now, a benefit of the HomeReady loan is that you can use some non-traditional income sources as income for purposes of qualification. For example, income from a mother-in-law unit, or income from non-borrowing household members can be used to help qualify you for the loan. So they really are designed to help people qualify for loans and start building generational wealth through homeownership. The next loan product I wanna discuss is the VA loan, which are backed by the Department of Veterans Affairs. To qualify, you have to be an active duty serviceman or a member of the National Guard or a reserve veteran or a qualifying spouse of a deceased veteran. These types of loans, you don't need to put anything down. You can put 0% down for your home. And even though you don't have to put anything down, you also don't to pay for mortgage insurance, but you do have to pay a funding fee that is 2.3% of your mortgage value. The last loan I'm going to talk about is the USDA loan, which is backed by the United States Department of Agriculture. These loans offer lower fees than other loans, but they are focused more on people in rural and suburban areas. So you'll need to check a map to figure out whether or not your area qualifies. There are also more strict financial requirements. The combined gross income of your household can't be more than 115% of the area median, and you'll want at least a 640 credit score to qualify. All right, so those are 5 different There are a lot of different programs out there that you don't need 20% down to qualify for, and you can put down as little as 3% and sometimes even 0% depending on whether you fit into that loan category. Not only are there loans available where you don't have to put 20% down, there are also programs out there that will help you save up and provide you funding for a down payment. So bottom line is that you might actually be a lot closer to buying a home and starting that generational wealth building journey than you might think. So if you are thinking about taking that step, Reach out to a realtor, reach out to a trusted lender, make sure you get as much information as possible so that you know what steps you need to take to get into a home. If you are thinking about buying a home or want more information about these programs, definitely reach out to me. My contact information is in the description below. I will personally answer every call, every email, every text, and I would be more than happy to help you. And if you like videos just like this, please consider subscribing to my channel and don't forget to click the bell so you're alerted every single time I post a video. Austin Klar.
