If you’ve dreamed of becoming a home owner but aren’t sure you have the funds for a down payment, worry no more. The 20 percent down payment is just a myth with today’s financing options. According to a recent survey by the National Association of Realtors, the first-time home buyer’s average down payment is just 6 percent. So what are the options to getting into a home without all that money. Here are the main four we will focus on in this blog: FHA loans, Conventional loan programs, VA loans, and Down Payment Assistance Programs.
FHA stands for the Federal Housing Administration, and its loans help borrowers who don’t qualify for other loan types. The primary reason to choose this type of loan is because it allows a borrower to put as little as 3.5% down and offers relaxed credit and debt-to-income requirements. The downside, you’ll need government-provided mortgage insurance (MI). However, because of MI, lenders often offer FHA loans at attractive interest rates.
It is possible to get a conventional loan with as little as 3% down, but just like with FHA loans, there will be (private) mortgage insurance attached. However, once you reach 20% equity in the home, this additional costs can be waived. Conventional loan programs like HomeReady allow non-borrowing household members to contribute toward qualifying income.
The U.S. Department of Veterans Affairs backs loans as a benefit for active-duty military personnel, veterans and some spouses/widows. What is great about a VA loan is that it requires 0 down and no private mortgage insurance. And while credit scores do contribute to qualifying, minimum requirements usually lead to a good rate.
DOWN PAYMENT ASSISTANCE PROGRAMS
Down payment assistance programs are designed to be gifts or secondary loans that can help meet your minimum down payment. They can be restricted to first-time home buyers and some programs are offered to specific qualified applicants (like teachers, police officers, etc). However, don’t assume that all of these types of programs are limited to low or moderate income buyers, especially if you live in expensive areas where limits may vary.
There are many reasons why you may not have or want to put 20% down for a mortgage. Maybe your money can be used more useful elsewhere, maybe you are ready to buy but don’t have enough in reserves, or perhaps you want to invest your money somewhere else. Whatever your reasons, you can buy a home with less than 20% down. With historically low interest rates, it’s still a great time to be a home buyer. Start your home search today!