It seems like you’ve been trying for years to save enough money for a down payment for a home. You’ve cut corners, taken lunches to work and yet, home prices continue to rise and your dream of owning a home seems out of reach.
Guess what? Maybe you arecloser to owning a home than you think, because for many loan programs, you don’t needto have 20% for adown payment to purchase a home.
No matter how much you may have saved, there’s probably a mortgage program that can help you, right now, get into a home. Let’s take a look at a few options out there. We’ll begin with the FHA Home Loan.
FHA Loan (3.5% Down Payment)
FHA loans allow for a 3.5 percent down payment. FHA Loans are insured by the Federal Housing Administration (FHA), and these loan programs are perfect for first– time home buyers.
FHA loans require mortgage insurance premiums or what is called MIP. Another greatlow–downpayment loan program is the HomeReady Mortgage.
The HomeReady™ Mortgage (3% Down Payment
The HomeReady™ mortgage isa low–down payment loan available through Fannie Mae.
The HomeReady program allows for 3% down, grants access to below–market mortgage rates, and offers discounted rates for private mortgage insurance. HomeReady™ also gives you the ability to use income from everyone who will be living in the home toward the actual mortgage approval. This can include parents earning pension or social security income, or roommates who want to all go in and buy a home together.
The HomeReady™ program is available in low–income areas, areas with a high minority population, and areas affected by a natural disaster. However, you do not need to be a low–income household or a minority to get approved. You must onlybuya home in a pre–approved area.
The next low–down payment option is the Conventional 97, which is a 3% down payment loan program.
Conventional 97 (3% Down Payment)
The Conventional 97 is a special program which was recently reinstated by the Federal Housing Finance Agency (FHFA). They arethe parent of both Fannie Mae and Freddie Mac. The Conventional 97 requires a down payment of just 3 percent. The program also allows a buyer’s down payment to be gifted by a third–party, so you really don’t have to have your own money for a down payment.
The only requirement is that theperson who is gifting the money for the down payment isa blood or marriagerelative,a legal guardian,adomestic partner, or finance/fiancée to the buyer of the home.
The Conventional 97 mortgage is limited to $510,400, regardless of your local mortgage loan limit; and multi–unit homes are not allowed. The program is also restricted to fixed– rate mortgages only.
The Conventional 97 programmay cost moreon amonthly basisthanother loan programs like FHA.Butyou can cancel the program’s mortgage insurance in asfew as 12 months from the date of purchase. So,in the long term, your monthly payment may be less once the mortgage insurance is canceled. Next, let’s look at the Good Neighbor Next Door program.
Good Neighbor Next Door ($100 Down Payment)
The Good Neighbor Next Doorprogram is a specialU.S. Department of Housing and Urban Developmentor HUD Program. Thismortgage program allows home buyers to purchase homes with just $100 downin approved Good Neighbor Next Door areas. The program is available to members of law enforcement; firefighters or emergency medical technicians; and, teachers of pre–K through 12th grade.
Buyers in theGood Neighbor Next Doorprogrammay qualify toreceive a home purchasediscount of 50%. Seriously! You could get the house forhalfprice. You must agree to live in the home as your primary residence for36 months. This means that if you buy a$200,000 homewith a Good Neighbor Next Door program and live in the
house forthree years, you will be forgiven $100,000 on your loan and get the home for $100,000.
Definitely worth a look at, if you are a teacher, law enforcement officer, fire fighter or first responder. Another fantastic low–down payment program is the VA Home Loan.
VA Home Loan (No Down Payment Required)
If you have served your country, first thank you for your service and second, you have a great benefit with the VA Home Loan. They may not have told you a lot about the VA Home Loan in boot camp, but it is a pretty cool benefit that you should definitely consider.
VAHomeloans are available to active–duty members of the U.S. military;honorably dischargedservice members; and many surviving spouses. VAhomeloans are amongsome of the bestlow–and no–down payment mortgage programsavailable todaybecause they require no downpayment whatsoever and never require the buyer to make a mortgage insurance payment.
The VA Homeloan can be used formost any type of home includingsingle–family, condo,andmulti–unit. VA loans, like FHAare assumable by future VA home buyers. Next let’s look at another great no money down option with the USDA loan.
USDA Loan (No Down Payment Required)
The USDA loan is guaranteed by the U.S. Department of Agriculture and allows for 100% financing. USDA loansoften thought of as“rural” loans, but they are alsoavailable in non–rural areas, including within many U.S. suburbs. One of the biggest benefits ofthe USDA loan is that its mortgage rates are often the lowest of all the low–and no–down payment mortgage programs; and itsmortgage insurance requirements arealso pretty low.
In order to qualify for a USDA loan, the income of a home buyer’s household may not exceed the local media by more than fifteen percent. Next, let’s look at conventional mortgage options with privatemortgage insurance.
Conventional Home Loans with PMI
If you are looking to get into a house withless than 20% down, a conventional home loan with private mortgage insurance may be an option. Private mortgage insurance or PMIis a type of mortgage insurance that protects your lender if you stop making your payments on your loan. PMI only applies to conventional loans, but other loan programs like, FHA requires mortgage insurance too, although mortgage insurance on FHA loansoperate differently than PMI.
How much money you putdown playsa role in determining how much PMI you’ll have to pay. A small down payment means a bigger risk for the lender, so your PMI will cost
more. The type of loan you get, like a fixed rate mortgage or adjustable rate mortgage will also affect how much your PMI will cost as will your credit score.
One of the biggest advantages of PMI is that you may be able to get rid of PMI atsome pointin the future. This means that after what you owe on your mortgage is below 80% of the value of your home you can write to your lender and ask them to remove your PMI. If you qualify it would mean that your monthly payment would decrease.
PMI gives you the option to get into a home with less than 20% down, which could help you realize your dream of home ownership! Finally let’s look at what is called a piggy–back mortgage.
Piggy–Back Mortgage (10% Down Payment)
The “Piggy–Back” Mortgage is a not really a mortgage at all. Infact,it is reallytwo separatemortgages. It’s called a piggy–back mortgage because,one mortgageis “piggy–backed” on top of another in order to borrow 90% of a home’s purchase price. This loan is also sometimes called an “80/10/10mortgage “. The Piggy–Backmortgage allows the buyertoput10%downfor adown payment. This loan allows you toavoid having to pay mortgage insurance. Instead of one mortgage, you havetwo mortgages. The first mortgage is typically a conventionalloan andis approved at 80% loan to value ofthe home’s purchase price. The second mortgage is typically a home equity line of credit (HELOC)that is 10% of the loan to value.
Piggy–Back Mortgages are often used by home buyers who plan to pay down or reduce the balance on their second mortgage within the first 24months of homeownership. Whichever loan program works for you, it’s important to remember that you have options and you may not need to wait to get into your dream home.