Goodluz / Adobestock
There are many people who would love to buy a home but don’t believe they can until they save up a 20% down payment. There are actually many solutions, including both commercial and government initiatives, aimed at helping people buy a home with lower down payment options. Here are three:
FHA Home Loan
Private lenders offer this home loan that doesn’t actually lend you money for a mortgage, but rather, offers a loan from an FHA-approved lender, similar to a bank. The loans are guaranteed, so lenders are willing to loan at much lower rates, which is desirable for many buyers. However, the cost of low rates results in a premium to be paid by the borrower. Some of the program’s benefits include:
Low down payments - As low as 3.5% down for borrowers who have a credit score of at least 580, while those not qualified for that rate can usually get the loan at 5%.
Higher loan amounts - FHA maximum loan limits are generous and, at times, exceed conventional limits.
Easier refinancing - Refinancing later is easier with more lenient terms and qualifications.
The Veterans Administration guarantees loans for current service members and discharged veterans looking to purchase or refinance a primary residence. The VA is often more lenient than conventional or FHA loans when it comes to income qualifications and credit requirements. Zero down payment financing is available for as much or more than $400,000.
There is a funding fee for a VA loan, which varies between 0% and 3.3%, but in some cases it can be financed as part of the mortgage. There are also programs to allow additional money in the loan to cover renovations. For example, the VA Energy Efficiency Mortgage lets borrowers add up to $6,000 to their loan for solar, insulation, storm windows, and other energy-efficient upgrades.
USDA Rural Housing Loan
On the USDA website, homebuyers are surprised at how much of the suburbia and country qualifies as "rural" for this fantastic loan. The USDA loan offers competitive rates, allows buyers to finance closing costs and prepaid items in most cases, and sometimes finances repairs or property upgrades. Features include:
Zero down payments - The USDA does not require a down payment if the home’s value is sufficient.
Eligibility - Borrowers can make up to 115% in income compared to the area median income. Some buyers can qualify even if they have past credit problems or bankruptcies.
Low closing costs - Little to no cash is needed at closings, as eligible closing costs can be financed into the loan.
Are you looking to get past the down payment hurdle? I can help you explore your options. Contact me today.