The lack of down payment money is one of the primary hurdles to homeownership among American home buyers. It’s either they haven’t saved enough, or most of them are caught up in the perpetuated misconception that at least 20 percent of the home’s purchase price is needed to successfully make a purchase.
Fortunately, this no longer holds true today. A lot of home buyers, even if they have the cash to pay for the conventional down payment requirement, choose not to in order to invest the money in other high-return ventures. Others simply want to keep their good cash flow.
Whether you are cash-strapped or simply want to make strategic use of your money, there are options for you. Explore these low to no down payment mortgages.
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One of the most popular mortgage programs available today, the FHA home loan only requires a 3.5 percent down payment for those who can meet its minimum credit requirements. The program also allows for down payments to be gifted, allowing borrowers to get 100 percent financing. However, the borrower would need to pay for a mortgage insurance premium along with the required fees. This costs 1.75 percent upfront and 0.85 percent of the loan balance per year, paid in 12 installments along with your monthly mortgage payment.
These loans are guaranteed by the Federal Housing Administration.
A zero-down payment mortgage option, the VA home loan is touted as one of the best mortgage programs available today. It offers 100 percent financing with no mortgage insurance payments required even when you opt to get the full 100 percent financing benefit.
Furthermore, the program offers competitive interest rates with very lenient underwriting standards.
However, the program is exclusively available to the nation’s military service members, both on active duty and reservists as well as their eligible spouses.
The only cost incurred by home buyers purchasing a home with this program is a VA funding fee.
The program is insured by the US Department of Veterans Affairs.
The US Department of Agriculture offers a zero down payment mortgage for low-to-moderate income home buyers. The department, however, limits the eligible property to be financed to be within an area designated as “rural.”
Just like the VA home loan, a USDA mortgage offers 100 percent financing, lenient credit and income standards, and very competitive interest rates.
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The Conventional 97
This program is a 3 percent down payment option offered by the government service agency Fannie Mae. Just like your FHA home loan, your down payment can be gifted. First time as well as repeat buyers are eligible and there are no placed limits on income. A monthly private insurance will be paid, but no upfront charge.
Another low down payment option by Fannie Mae, the HomeReady™ mortgage program, also offers 3 percent down payment mortgage but with lesser restrictions than the standard Conventional 97.
Both closing costs and down payment can be gifted but the program places limits on how much you earn to be qualified. The program also has lower mortgage insurance payments.