Year after year, home buyers cite "the down payment" as their biggest obstacle to homeownership.Â Yet, in many parts of the country, youÂ can buy a home with no money down.
In fact, there are entire loan programs createdÂ specifically to help home buyers get into a home with as little down as possible.
So, why do home buyers still think they need twenty percent down?
There are a bevy of options for buyers who want to make a low down payment or no down payment at all. The FHA loan requires a down payment of just 3.5 percent; and the VA loan and USDA loan both require no down payment whatsoever.
Plus, through the use of housing grants (which are available in many U.S. cities), buyers can have a smallÂ down payment gifted to them by the municipal government of a region, so long as that buyer will agreeÂ to live in the home for five years or longer.
And, then there's the conventional mortgage loan.
Often overlooked because it's linked to loans requiring twenty percent down, the conventional loan program offers multiple low-down payment mortgage options to first-time home buyers and repeat buyers; and mortgage rates are typically excellent.Click to see today's rates (May 31st, 2016)
There are dozens of mortgage loans available to home buyers today. In general, though, mortgages can be divided into two broad categories -- government-backed loans and conventional loans.
Government-backed loans are loans for which mortgage lenders are protected against loss via government insurance program.
The most common government-backed loan is the FHA loan, which is insured by the Federal Housing Administration. FHA loans got their start in 1934, and helped to reboot the U.S. housing market after the Great Depression.
FHA loans worked so well that the Department of Veterans Affairs sponsored a similar program for military personnelÂ returning from war in 1944.
With the creation of the G.I. Bill that year, the VA Home Loan Guaranty program was established, which guaranteed lenders against loss on mortgage loans made to veterans.
Then, the USDA Rural Housing Program was launched.
Meant to help home buyers settle less-populated parts of the county, the U.S. Department of Agriculture launched its flagship 100% financing programÂ and provides insurance to lenders making USDA loans.
By contrast, conventional loans are notÂ backed by the government.
Conventional loans are backed by Fannie Mae and Freddie Mac, and these two agencies exist solely to help banks make mortgage loans. They offer no mortgage insurance to lenders, leaving that task toÂ private mortgage insurance (PMI) companies.
In today's market, conventional mortgages account for more than half of all mortgage loans made; and, according to conventional mortgage guidelines, PMI is required when a borrower's loan-to-value is above 80% (excepting for the HARP mortgage refinance).
This is likelyÂ why buyers think youÂ haveÂ to put 20% down on a home. Conventional loans are the most prevalent of all loan types and PMI comes into play with down payments of less than twenty percent.
People seem to think PMI is a waste of money.
PMI is not a waste of money. Because of PMI, renters can more easily transition into homeownership. PMI makes low-down payment loans possible.
When you want to purchase a home and don't want to make a large down payment, you can look beyond just the FHA, VA, and USDA home loan programs.
There are low down payment conventional loans, too.
TheÂ Conventional 97 mortgage allows for a down payment of just three percent. The program requires that you purchase a single-unit home, and that you borrow no more than the national mortgage loan limitÂ -- "high-cost" mortgages do not apply.
Down payment monies may be gifted from a family member with theÂ Conventional 97 and private mortgage insurance is required.
TheÂ HomeReadyâ„˘ mortgage is the newest low down payment conventional mortgage loan.
Originally meant for multi-generational households where parents, children, and grandparents all share a home, theÂ HomeReadyâ„˘ home loan can be used by anyone, based on where you live.
HomeReadyâ„˘ is available to households who earn less than the area's median income; to all home buyers within low-income census tracts; and, to home buyers in federal disaster zones.
TheÂ HomeStyleÂ® Renovation loan is a home construction loan that requires just 5 percent down. It's "one-close", whichÂ means that you home buyers can use the HomeStyleÂ® loan to finance the propertyÂ andÂ its improvements.
Just about any type of renovation or repair is eligible. Program guidelines only require that whatever improvements are made are permanently affixed to the home, and adds to the home's value.
Eligible home improvement projects include kitchen remodeling; landscaping installation; home appliances replacements; and, the building of an in-ground pool.Click to see today's rates (May 31st, 2016)
The "piggyback" loan is actually two mortgage loans -- not one -- with the loan is typically structured as one mortgage lien for 80% of the home's purchase price, and a second mortgage lien for 10% of the home's purchase price.
Combined, the borrower's mortgaged amount is 90% of the home purchase price. The down payment, therefore, is ten percent.
However, because the first lien is for 80% of the home's value, PMI is not required. In this way, a home buyer can put down less than twenty percent and still not pay private mortgage insurance.
Piggyback loans are available with most mortgage lenders, and there are no income- or geography- based restrictions to its use.
When you want to make a low down payment, conventional mortgages can be less expensive and easier to access than FHA, VA, or USDA loans.
Get today's live mortgage rates now. Your social security number is not required to get started, and all quotes come with access to your live mortgage credit scores.Click to see today's rates (May 31st, 2016)
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
The Mortgage Reports is invaluable. It's our primary source for information on housing finance.
Sandi C. Customer Service Representative
The Mortgage Reports has been extremely helpful in educating me about mortgages, and what is available. Thank you for all that you do!
Mohammed Y. Retired
The Mortgage Reports is informative and I read it daily. I am grateful for the knowledge I have gained.
2016 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)