Mortgages with Little or No Down Payments
One of the most daunting things about buying a house is coming up with the down payment. It used to be that you were expected to have twenty percent of the asking price ready to go when you bought a house. Today, that's not always the case. In fact, there are a number of mortgages that actually require a very low or even no down payment at all. Individuals and couples looking to buy a home, find these mortgages especially attractive since they may have had little time to save up such a large amount of money.
On the downside, some of these mortgages have very specific requirements or are only available to certain people. Here are five mortgages that do not require a large down payment and some information about them.
VA Loans are mortgages handled by the U.S. Department of Veterans Affairs. They are only available to those who are honorably discharged veterans, current active-duty members of the military, or members of the Reserves and National Guard who meet specific guidelines. Spouses of some military members also qualify. These loans do not require paying mortgage insurance, but there is a funding fee. Like most closing costs, though, this fee can be rolled into the mortgage. That means there's next to nothing to pay at the time of purchase – truly a zero down purchase.
The funding fee is determined by the amount of down payment you make and whether you've served in the military or in the National Guard/Reserves. It's also affected by whether this is your first loan through the VA or not. If it's the first time you've taken out a VA mortgage, are in the military or are a veteran, and do not have a down payment, your funding fee will be 2.15 percent. That's quite low and a very reasonable amount.
The USDA Rural Development loan program is one of the most popular government-ran mortgages. So many people apply every year that the program has often run out of money partway through the year. That's why, if you're planning on applying for a USDA loan, it's best to do so as early in the year as possible.
While this loan is backed by the Department of Agriculture, it's not limited to purchasing farmland. You can go to the USDA website and look at the map of eligible land where these loans can be used. Besides this limit, the program also requires you to meet specific income guidelines. The program is also mainly designed for first-time homebuyers, but it does have some exceptions. The mortgage is offered through a bank, although the USDA guarantees it. You do not need to purchase mortgage insurance, but there is a small upfront guarantee fee and an annual fee that you have to pay, although that fee is only 0.35% of the loan's current balance.
The FHA loan is by far the most popular. An FHA loan is a great "low down payment" option, also if your credit is less than perfect. It's designed to give those who have had some credit issues still qualify to purchase a home. You can make a down payment as low as 3.5 percent of the loan. There is an upfront charge of 1.75 percent, though. You also have to pay an annual premium if you make the minimum down payment. This premium is 0.8 percent of the amount. That's fairly small—it comes out to an additional $67 dollars a month if you borrow $100,000.
Private Mortgage Insurance
While this option isn't exactly a type of mortgage, it is a way of getting a home loan without putting down a large down payment. Private mortgage insurance, or PMI, is a type of guarantee to the lender. It's basically a promise that if you go into foreclosure, the loan will still get paid back. You can also usually cancel the PMI once you've paid off enough of the loan to equal 80 percent of the value of your home.
PMI is often very affordable and can lower your down payment to as little as three percent. However, there are fairly strict credit qualifications you must meet.
Need Help Finding a Mortgage?
If you're not certain how to apply for one of these mortgages or if you qualify, speak to your real estate agent about financing – they are most familiar with lending options and can provide you a trusted referral. If you're a part of the LGBTQ community, contact a gay or lesbian agent and ask them for a referral to a lender who is LGBTQ friendly. You can find the Nation's top gay real estate agents on www.GayRealEstate.com, a website focused on the LGBTQ real estate industry.