When you’re in the market to purchase a home, you should probably prepare yourself to shell out a down payment. Usually, mortgage lenders will require a 20% down payment; there are a lot of benefits when you comply such as, but not limited to, higher equity on your home, lower monthly payments, and more options for mortgage lenders. However, if your current economic situation does not permit you to comply with this, then this article is for you!
There is a myriad of options where you are only required to put up lesser than 20% DP or none at all. Most, if not all, of the options, are government-backed, so there’s ample regulation behind it.
Home Ready & Home Possible
Fannie Mae and Freddie Mac, colloquial for the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation are two entities established by the government that offer mortgage applicants a conventional fixed-rate loan for those who can’t afford the 20% down for it. These programs allow first time and repeat buyers who are eligible to put as little as 3% down.
The income requirement depends on the area you live in. A down side is that these programs require you to take out mortgage insurance until you have 80% equity in the home. However, if you’re looking for a way to own a home without having to shell out that huge of an amount for a down payment, then these programs are one of the solutions you could consider.
There are a few different low or no down payment options that are backed by the government and can be a great option for qualifying buyers.
VA – backed by Veterans Affairs. If you’re an active or retired member of the Armed Forces, then taking out a VA loan to finance your home purchase is a practical option. An upfront funding fee can be rolled into the loan in place of the down payment. Since this is government-backed, VA loans often come with affordable interest rates compared to other loan programs, and they come with additional benefits like hardship assistance and no prepayment penalties.
FHA – backed by the Federal Housing Administration. This is an option of the regular American. If you have a credit rating of at least 500-580, you can apply for a mortgage with the FHA, and the latter sometimes only requires you to put up as little as a 3.5% down payment. This program was created for low-to-moderate-income buyers who may also have low credit scores.
USDA – backed by the U.S. Department of Agriculture. This program is ideal for those home seekers who are moving to urban areas. USDA mortgages often do not require any down payment and since 97% of the U.S. is considered rural, there’s a great chance that even that suburban area you’re planning to move to qualifies. With affordable interest rates, 100% financing, and flexible credit requirements, USDA loans are something worth considering.
State Organizations – Most state housing associations also offer down payment assistance programs to would-be homeowners. Although the requirements and threshold differ from state to state, applicants often enjoy a lower down payment requirement under state housing-backed mortgages. However, this privilege is often reserved for certain classes such as first-time homebuyers and other analogous classes.
There are certain benefits to paying a 20% down payment. No doubt about that. However, we hope that through this article, you can understand that you can be a homeowner despite not having enough savings to comply with this requirement. The government has certainly made owning a home more equitable and accessible, so be sure to check out the options mentioned above when you’re looking for alternative mortgage lenders. If you have questions about the home buying process or are ready to buy your next home, contact us today.