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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.

The 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.



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