Plenty Of Low Down Payment Programs Available To Buyers
Eager to buy a home but worried that you lack the down payment to get your foot in the door?
This is a common concern among mortgage candidates who are often told they need to of their home price as a downpayment.
Surprisingly, however, the median downpayment made by first-time buyers is actually only six percent, according to a recent National Association of REALTORS® (NAR) survey.
Many prospective borrowers don’t fully realize the options available to them — especially those related to low-downpayment loans.
Increasingly, homebuyers are learning the facts about available loan programs that require little to no downpayment and far-from-perfect credit scores.
Downpayments Are Optional
Several mistaken beliefs about home financing are stubbornly persistent, says Natalie Abadir, Executive Vice President of Production for Endeavor America Loan Services in Walnut Creek, Calif.
“Many borrowers believe that their minimum down payment must come from their own funds and cannot be from a gift, or if they have a credit score below 620 they will not qualify for full financing, or that qualifying ratios are calculated from their net income instead of their gross income,” says Abadir.
What’s more, too many loan candidates think downpayment assistance is only available to low-income buyers. In fact, 70 percent of U.S. adults indicated they were unfamiliar with downpayment assistance programs for middle-income home buyers in their community, according to a NeighborWorks America survey.
Kathy Cummings, a Charlotte, N.C.-based first-time home buyer expert with Bank of America, says too many home seekers make assumptions that they won’t qualify. Worse, they dismiss themselves prematurely from opportunities available to them—including low-downpayment programs.
“Perceived lack of funds for a downpayment has long been one of the most common barriers to buying a home,” says Cummings. “These misconceptions persist due to lack of knowledge about the evolving mortgage market, which actually offer programs of great value.”
No- and Low-Downpayment Solutions To Explore
There is no lack of low- and no-downpayment options available in today’s market.
Giant mortgage rule makers like Fannie Mae and Freddie Mac have rolled out powerful new programs. These supplement loan types that have been around for years.
Among the applicable options available to eligible borrowers are as follows.
The Federal Housing Administration’s (FHA) loan offers 96.5 percent loan-to-value (LTV) financing (3.5% down). Your total down payment amount can come from a cash gift, making it, in essence, a zero-down loan.
Credit scores as low as 580 can qualify, although some lenders require at least a 620 score. Twenty-three percent of homeowner-occupants finance their purchase via a low downpayment FHA-backed mortgage, according to NAR.
Fannie Mae’s is an enticing choice for first-time and low- to moderate-income borrowers. It requires just 3 percent down and offers a thirty percent reduction in mortgage insurance costs.
Buyers need a minimum credit score of only 620, and borrowers with no credit history may use non-traditional credit accounts to qualify.
HomeReadyTM is ultra-flexible on income sources as well. The lender will consider income from household members who will not be on the loan. Income from roommates and boarders will help the buyer qualify as well.
Home Possible Advantage
This Freddie Mac program offers 97-percent-LTV financing. At least a 660 credit score is required, and income limits apply.
The entire down payment can come as a cash gift from a family member, making this a zero-down loan option for many buyers.
VA Home Loans
U.S. Department of Veterans Affairs’ (VA) no-downpayment loan is increasing in popularity. The NAR reports that 11 percent of homeowners finance their home purchase with a VA home loan.
This mortgage type provides up to 100 percent financing for qualified veterans and active service members.
These loans offer distinct savings over other loans. They do not require mortgage insurance and rates are up to 0.40% lower than those of conventional loans. These two features can cut the buyer’s housing costs by hundreds per month.
USDA Home Loans
The U.S. Department of Agriculture’s (USDA) home lending program loan extends up to 100 percent financing for qualified buyers in rural and suburban areas.
The loan is known as a USDA home loan or , and is extended by local banks and mortgage companies across the country. Even buyers near metropolitan areas should check into this loan type if they plan to buy in surrounding suburbs.
Downpayment assistance programs (DPA)
Numerous programs exist, bestowed by many cities, counties, and states across the country. “These programs offer money to cover downpayment and/or closing costs in conjunction with a 3.5 percent down FHA loan,” says Victor Higbee, Vice President with PrivatePlus Mortgage in Atlanta.
“Some programs forgive the amount of money granted. Others require a payback of all the money in the future. Many municipalities offering DPAs have limited funds available allocated on a first-come, first-serve basis.”
New home buyers should check into local programs. Downpayment assistance can speed the time it takes to save enough for the upfront costs of homeownership.
Qualifying For A Low-Downpayment Mortgage
Most of the aforementioned loan products “will allow nontraditional or limited credit to qualify for the mortgage,” says Whitney Fite, President of Atlanta-headquartered Angel Oak Home Loans. “Be prepared to furnish sufficient documentation when applying for any of these options, and be aware that some of these loans require you to have mortgage insurance, although possibly at discounted rates.”
Getting approved for these programs nowadays can be easier than you think, so don’t be scared off by the paperwork involved.
“Today, lenders are better able to measure a borrower’s ability to repay and, along with loosened credit criteria, borrowers are experiencing positive results,” says Mark Plasters, Eastern Regional Manager for Ditech Financial in Fort Washington, Pa.
If you don’t qualify for the lowest down payment option available through one of these programs, you can increase your chances of being eligible by working to improve your credit.
What Are Today’s Mortgage Rates?
New home buyers have a unique opportunity to take advantage of low- and no-downpayment programs combined with current mortgage rates.
Low rates are helping buyers pay less for homes and break into homeownership sooner.
Get an accurate, up-to-the-minute rate quote from a lender. Your social security number is not required to get started, and all quotes come with access to your live mortgage credit scores.