Mortgage Down Payment Options

Mortgage Down Payment Options

One of the biggest concerns you may have if you are considering buying a new home is how to come up with enough money for a down payment.  Traditionally, lenders have required a down payment of at least 20 percent in order to qualify for a mortgage.  This number can seem very daunting to many prospective homebuyers, but don’t let that number be the reason for dismissing the notion of buying a home.  Today, many people are able to buy a home with as little as three to five percent down – or even nothing down.  Here’s a look at some of the programs that offer down payment assistance.

Federal Housing Administration (FHA) Loan Insurance

The Federal Housing Administration (FHA) is a government agency that does not actually make loans, but rather insures loans.  Having an FHA-insured loan gives lenders protection in case of default.  As long as a loan meets the FHA minimum standard requirements or guidelines, then they will insure the loan against loss.  Some of the guidelines for an FHA-insured loan include making a down payment of at least 3.5 percent of the purchase price.

While FHA loans are a great choice for many people, be aware that the cost to insure the loan can be somewhat high.  This type of loan requires an upfront cost of 1.75 percent as well as an annual cost of about 1.55 percent depending on the terms of the loan.

VA Home Loans

If you are a veteran or are on active duty, the Department of Veteran’s Affairs also offers loans for military personnel.  These types of loans are available for up to 100 percent of the purchase price of the home, meaning that no down payment is required.  They also require no mortgage insurance.  Rates tend to be low for VA loans and can be a great choice for those who qualify.

USDA Home Loans

The U.S. Department of Agriculture offers a Rural Housing Loan.  These loans also cover up to 100 percent of the purchase price eliminating the need for a down payment.  To qualify, the home must be within a pre-approved USDA census tract.  This generally includes many U.S. suburbs.  The borrower must also earn an income that does not exceed local averages.  The USDA charges a small annual fee of 0.40 percent for these loans.

Conventional 97

Conventional 97 loans are offered exclusively by Fannie Mae and require just a three percent down payment.  These types of loans can overall be less expensive for some borrowers than an FHA loan.  The down payment can come in the form of a gift as long as the gifter is related.  Borrowers must have a minimum credit score of 680, although the score rises to 740 if the down payment is received as a gift.  The loan size may not be greater than $417,000 and the home must be a single-unit residence.  The mortgage must also be a fixed-rate mortgage.

If you are thinking about buying a home but are worried about having enough money for a down payment, it is worth it to further research these programs to see if you qualify.  You may just find that you are able to buy your new home with little or no money down at all!


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