Your Guide to Buy Home Loan With Low Down Payment
For many of us, buying a home is the biggest purchase and largest investment we’ll ever make in our lives. It can be a bit daunting to think about the hundreds of thousands of dollars often involved in owning your own home. Then, to make it worse, we keep hearing that we’re expected to come up with a down payment – and that 20% is standard. 20% of a whole lot of money is, let’s see… still a whole lot of money!
As it turns out, that 20% rule is so last century. There are all sorts of options for financing a home, even if you need a home loan with low down payment. While a down payment is still often expected – and probably a good idea even if it’s not – there’s no hard and fast rule about just how much it has to be. In fact, you have several options when it comes to a home loan with low down payment. Here a starter’s guide to how to get home loan with low or zero down payment.
Try the Federal Housing Administration
The FHA is part of the Department of Housing and Urban Development. They don’t loan money, but they will in many cases back up loans for qualified buyers. That means lenders face lower risk and are far more likely to approve you and offer you better interest rates and other terms.
If you’re buying your first home, an FHA-backed loan could be for you. Your down payment can be as low as 3.5%! If you’re looking to make your home more energy efficient, or to purchase a home which requires substantial improvements, the FHA loves that as well. They’ll often roll the cost of the improvements into the mortgage, whether you’re buying or refinancing.
If you still need some help with that down payment, they’ll even help you find state or local support near you. You want to know how to get home loan with low or zero down payment? Start by looking into the FHA.
Look at the USDA
Wait, aren’t these the people who tell us it’s safe to buy meat at the grocery store? They are, but it turns out they also promote rural development – and that means supporting home buyers in approved areas. No guide to buy home loan with low down payment could be complete without talking about the USDA home loan.
Like the FHA, the USDA doesn’t actually do the financing, but they’ll secure your loan, which allows lenders to give you far better terms – like, say… a lower down payment. Lest you think “rural” living isn’t for you, check out their website and eligibility map. It turns out like with so many things the government does, “rural” covers way more ground than you might think.
Try a Home Ready Loan
This is a loan backed by Fannie Mae which is designed specifically for low- and moderate-income borrowers looking for homes in areas designated as low-income, disaster-impacted, or otherwise in need of revitalization. Interest rates are often better than what’s offered with a traditional mortgage, and associated fees are reduced for easier processing as well.
Just like with the USDA’s “rural development” push, don’t cross this one off until you’ve checked to see if the home or area you’re considering anyway are covered by its guidelines. Remember – you can’t assume anything when it comes to government definitions!
The Conventional 97 Program
What sounds like a failed college rock band is actually another Fannie Mae program, more accurately known as the 97% Loan-to-Value (LTV) Purchase Program. The name comes from the 3% down payment required – meaning you finance the remaining 97%. Fees are reasonable, insurance requirements flexible, and interest rates comparable to what the same buyer could get with 20% down.
If you’ve not owned a home in the past three years, you plan on living in the one you’d like to buy, and the purchase price is around a half-million dollars or less, you may very well qualify for this one. Your credit doesn’t have to be great, but it should be at or above the 620 mark for approval.
These are just a few of your options. A complete guide to buy home loan with low down payment could fill volumes. The point is that it’s possible, if only you’re willing to do a little digging and go through a few extra steps.
Once you’ve found the perfect home – and the right financing – give us a call. If you think the savings on your down payment were impressive, just wait until you see what we can do for you with homeowner’s insurance. Until then, happy house-hunting!