Many still hold the idea that you couldn’t (or shouldn’t) buy a home unless you had a 20 percent down payment. But with the price of homes being what they are, for most people it would take a lifetime to generate that kind of savings. That’s why loan programs were developed to help speed up the path to home ownership by having very low down payment options, or others requiring zero-down.
After the home market collapse, however, such programs tightened up and became a bit more selective. But as the market has leveled off, lenders have once again loosened up some of the stringent qualifications that kept prospective buyers out of the market for the last few years. Of course, each home mortgage program has its own set of criteria, so there’s a good chance you qualify for one of the available programs.
Take a look at some zero or low down payment mortgage programs to see if there is one that’s a good fit for your situation:
The USDA Rural Development loan was designed to help people become homeowners in rural areas, so naturally, it won’t apply to everyone. However, with monthly mortgage insurance fees that are lower than other programs, less stringent credit requirements, and zero down, it’s worth exploring.
The key is that both you as the borrower and the property itself must be eligible for the loan. Being designated “rural” is based on Census map data, but some suburban communities fall into those areas. You can check if a property of interest is eligible via the USDA loan website’s database.
Other important tidbits to know: Your household income can be no greater than 115 percent of the median household income for the area in which the property is located. You’ll also have to work with a USDA-approved lender to get the application process going
VA Home Loan
The VA home loan is for a specific subset of the population – those who are currently in the military or those who have served. These attractive loans are federally backed, allowing borrowers to have better terms, low interest rates, and lenient credit qualifications. The best part, of course, is that borrowers are not required to make a down payment, and they don’t have to pay monthly private mortgage insurance (PMI).
To get started, you’ll have to obtain a Certificate of Eligibility (COE) which any VA lender can obtain for you. Once this step is completed, expect smooth sailing. Working with a military-friendly real estate agent will who understands the intricate rules of VA loans helps, too.
For quite some time, the FHA loan program has been the go-to lending product for people who could only come up with a small down payment (and who didn’t qualify for VA or USDA loans). The attractive part of the loan is that you only need to put 3.5 percent down, thus making the dream of purchasing a home a reality for many people who couldn’t do so otherwise. It is also the go-to option for those who don’t have an excellent credit score.
FHA does have its drawbacks, however, mostly because of its requirement to pay monthly private mortgage insurance, as well as an upfront premium equaling 1.75 percent of the loan amount. Borrowers must also work with FHA-approved lenders, and the home itself must meet the standards of an FHA appraiser.
Still, it often proves to be the saving grace for borrowers who either can’t come up with a big down payment amount, or who have less-than-stellar credit.
Just this past December, Fannie Mae and Freddie Mac, the two biggest mortgage agencies in the United States, announced that home purchases can now be made with as little as a 3 percent down payment. This is big news for prospective conventional borrowers who before had to come up with at least 5 percent down. This new 97 percent loan-to-value (LTV) rule means that home buyers no longer have to seek alternative mortgage programs if they don’t have a significant down payment.
Unlike the FHA loan, which has upfront fees, the 97 LTV conventional loan does not. Borrowers will still have to pay PMI, however, it automatically drops off once the loan balance reaches 78 percent of the property value.
This program is for homebuyers purchasing a single family home, condo, co-op or PUD, and the loan cannot exceed $647,200.
Many Options for Zero Down and Low Down Payment
The good news is that for whichever of these mortgage programs best suits you, the interest rates are still hovering at historically low levels. Even in the case of having to pay PMI, monthly payments can still be manageable as long as rates remain favorable to borrowers.
Verify your eligibility for one of these programs. With no shortage of zero down and low down payment programs, there’s a good chance you qualify for one.