Low Down Payment Mortgage Options
As home prices rise, so do mortgage down payments. Many potential home buyers are dissuaded from starting their home search because of the myth of the 20% down payment. According to Down Payment Resources, home buyers younger than 37-years-old put down an average of 7%. Looking to buy a home but lacking the 20% down payment? Consider one of these popular low down payment mortgage options.
Fannie Mae HomeReady® - Available with down payments as low as 3%. The down payment and closing costs funds can come from the home buyer’s savings or other sources like gifts, grants, and Community Seconds® with no personal funds required. Credit scores as low as 680 are accepted. Home buyers save with cancellable private mortgage insurance, that expires once home equity reaches 20%. Both first-time and repeat home buyers are eligible and the loan is free from geographic restrictions on loan amounts.
FHA Loan – Available with down payments as low as 3.5%, but lower credit scores will require a 10% down payment. Credit scores as low as 580 can qualify for a 3.5% down payment, but credit scores between 500-579 will require a 10% down payment. The loan is available to first-time home buyers and repeat home buyers with certain restrictions. Because the loan is government-insured, the borrower will be required to pay an upfront mortgage insurance premium plus mortgage insurance throughout the life of the loan.
Freddie Mac Home Possible® – Available with down payments as low 3-5% depending on credit scores. Flexible down payment sources are accepted, including gifts from family, employer-assistance programs, and secondary financing. Mortgage insurance is required until the home reaches 20% equity, and then is eligible for cancellation. Income limits vary, but there are no income limits in underserved areas.
VA Loan – Available with no down payment to eligible veterans, active-duty military, and surviving spouses. Closing costs can also be financed into the total cost of the mortgage. A funding fee will be applied to first time borrowers who purchase without a down payment A 10% down payment will reduce the funding fee. If the home buyer receives disability compensation, the funding fee is waived.
USDA Loan – A rural development loan restricted to certain regions designated by the United States Department of Agriculture and Rural Development. The USDA loan is available with no down payment; eligibility is based on home location, home buyer income, and other restrictions. The USDA loan typically carries a lower mortgage insurance rate than the FHA loan.
Down Payment Resource reports that 87% of US homes are eligible for some form of the 2,500 down payment assistance programs available. Saving for a down payment is typically the biggest obstacle renters face when looking to transition into homeownership. Getting preapproved by the right mortgage lender is one way to explore all your options and find the best low down payment mortgage for you and your financial situation.
Sources: BankRate, Down Payment Resource, Fannie Mae, Freddie Mac, the Mortgage Reports, Zillow