The Facts about Mortgage Down Payments
Many would-be buyers shy away from the idea of purchasing a home because
they have the idea they must have a minimum down payment of 20% in order
to purchase a home. For a first-time homebuyer looking at a starter
home, this can be a daunting amount. This is actually not the case. While many financial advisors do
recommend making a 20% down payment when possible, it is not a strict
requirement in order to qualify for a mortgage and buy a home. In fact,
the average down payment across the country is only a little above 12%.
While lenders have tightened their lending guidelines, it is still
possible to purchase a home even if you have a down payment of less than
20% or 10%. In fact, there are many buyers who manage to purchase a home
in the current market with a down payment of 5% or even less. There are
even mortgage down payment assistance available that will assist home buyers
in making a home purchase with down payments of 0%.
One of those programs is the VA Mortgage program. This program serves as
the primary mortgage lending program for veterans and is administered
through the Veterans Administration. In order to qualify for this
program, applicants must serve in or have served in the United States
military. In some instances, spouses of military members may also
qualify for a VA mortgage even if they were not in the military. This
primarily pertains to the surviving spouses of members of the military.
Another option to consider is the USDA. Through this program it is
possible to obtain a mortgage without a down payment at all. The program
is administered through the USDA's Rural Development Service. There are
restrictions which apply to this program. For instance, an applicant may
have an income that is not more than the average income for their local
area. In addition, applicants may not have what is currently considered
to be adequate housing. Furthermore, the home you are interested in
buying must be located in what is termed as a rural area. While the
latter might seem as though it would be challenging to meet, the good
news is that the definition of the term 'rural' by the USDA is quite
broad in nature. There are even some small towns and cities that will
meet the definition. If you are considering applying for this program,
it should be kept in mind that available funding may be limited, so it
is crucial that you apply early to improve your chances of receiving
approval. If there is no funding available when you apply, your
application may be moved to a waiting list.
FHA also offers a low down payment program, which happens to be the
most popular source of low-down payment programs. Through this program
it is possible to purchase a home with a down payment as low as 3.5%.
Most buyers who purchase homes through this program are first-time home
buyers, but you do not necessarily need to be a first-time home buyer to
qualify for this program. Lending limits through this program have also
been increased to $730,000.
If none of these programs suit your needs or your eligibility criteria,
you may still be able to get a low or zero down payment through a
conventional or standard mortgage. Such loans are commonly secured
through Freddie Mac or Fannie Mae. To qualify, your credit will usually
need to be above average.
When trying to find a low down payment or zero
down payment mortgage, you will often need to pay more for such a
loan than if you are making a 20% down payment. This is because the
interest rate may be higher to compensate for what is considered to be a
higher risk loan. You should also bear in mind that if you are making a
down payment of less than 20%, you will also be subjected to what is
known as private mortgage insurance or PMI. This can ultimately raise
your loan's interest rate by approximately half of a percentage point.
If you want to avoid PMI, you may wish to consider Homepath, a program
through Fannie Mae. This program focuses on selling properties that have
been foreclosed upon. A down payment of only 3% is required through
Homepath and borrowers are not subjected to PMI. In addition, you may
also be allowed to borrow above the purchase price of the home to allow
for repairs and renovations.