When many home buyers start looking into home loans, their primary concern isn’t making monthly mortgage payments. After all, if you choose a modest home, your mortgage payments might be equal to (or even less than!) what you’d been paying in rent each month. No, often the biggest concern for home buyers is the down payment—that hefty initial cost that most home buyers assume is required for a mortgage. Thankfully, that’s not true! Don’t lose hope if you don’t have the 20% down payment that everyone talks about. It is still possible to get a mortgage with a low or no down payment. How? Read on and we’ll discuss your options.
Mortgages Available with Low or No Down Payment
Your first option is a mortgage insured by the Federal Housing Administration (FHA). FHA mortgages are a great choice for home buyers concerned that they aren’t the “gold-star,” prime candidate for a loan. If you have a low down payment or a bad credit score, the FHA will often work with you to make a mortgage possible. You will need just a 3.5% down payment (which can be entirely gifted, if needed) and a credit score of 500 or more. With an FHA loan, you will need to pay your mortgage insurance premiums upfront at closing and once a month after that.
You could also try the Conventional 97 mortgage offered by Fannie Mae. As long as you have a 3% down payment, you can secure this home loan. That down payment can only be gifted, however, if the donation is made by a family member—whether through blood, marriage, engagement, domestic partnership, or guardianship. You are also limited to a total home loan amount of $417,000 and it can only be applied toward a single-unit home. The Conventional 47 program requires that your mortgage be fixed-rate and you have to have a minimum credit score of 680 (unless the down payment was gifted, in which case you’ll need 740 or more). This option comes with a lot of restrictions, but if the qualification standards fit within your dream of purchasing a house, the Conventional 97 mortgage might be the perfect option for you.
Next, if you are or were in the military and you have low or no down payment prepared, why not try a loan insured by the U.S. Department of Veteran Affairs (VA)? To qualify, you must be: (1) an active duty service member, (2) an honorably discharged service member, (3) the spouse of a service member killed in duty, (4) a former service member who spent at least 6 years in the Reserves or National Guard. VA mortgages don’t require a down payment and they’re flexible in other ways as well. Intermittent occupancy is permissible, bad credit and bankruptcy don’t automatically disqualify you, and no mortgage insurance is required. If you or your spouse are military personnel, this is a great option for a home loan.
Like the VA loan, the USDA loan also offers 100% financing, is available with low or no down payment, and can only be used by homeowners who fit specific requirements. Offered by the U.S. Department of Agriculture, these loans are based on home buyers’ neighborhood density and household income. Although mainly available to assist low or moderate income families living in rural areas, a USDA loan can sometimes also be used by fairly well-off families living in the suburbs. Plus, there isn’t a maximum purchase price for your home and you can include home repairs and renovations in the loan amount. These loans are great options for borrowers with little or no down payment prepared. Plus, they tend to have the lowest mortgage rates of all home loans available to buyers without a significant down payment.
Of course these loans are not the only options available to buyers with low or no down payment. Fannie Mae and Freddie Mac both offer 95% loan-to-value mortgages as long as buyers can put down 5% or more (and the down payment cannot be a gift). You could also do a home loan through Fannie Mae or Freddie Mac where you pay 5% of the down payment and the rest is a gift.
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If you live in southwest Missouri and have low or no down payment prepared but are hoping to purchase a house, the mortgage lenders at PrimeLending can help you find a home loan. Give us a call today at 417-616-0782. We would love to help.