Historically, consumers who were approved for mortgage loans were required by lenders to make down payments equal to 20 percent of the value of the home they were interested in buying. With many lenders today, the mandatory 20 percent down payment is now a thing of the past. The 20 percent down payment requirement prices many lower income families right out of the market for buying a home. With this in mind, a number of government agencies and private organizations have come up with alternatives for qualifying consumers. Some of the more well known organizations and programs that can assist you in getting a low or no down payment mortgage include: Federal Housing Administration (FHA) The Federal Housing Administration (FHA) offers mortgage insurance for eligible borrowers who cant afford to pay a 20 percent down payment on a home. Approved FHA lenders usually require a 5 percent down payment. Some lenders may only require as little as 3 percent down. Another advantage of this low down payment option is that you may be able to finance all one-time closing costs. Property taxes and homeowners insurance are some closing costs you cant get financed as these costs continue to recur. With FHA guaranteeing the loan, the lenders they work with arent at risk of losing any money. You will foot the bill for this insurance, however. The premium you pay is a percentage of the mortgage amount determined by the kind of home you buy. Typically, the maximum loan amount you may qualify for in most housing markets is a little more than $150,000. You will have to check with local FHA insured lenders to find out how large a mortgage you may qualify for. When it comes time to begin paying off a FHA loan, borrowers may pay up to 41 percent of their gross income toward the mortgage. Many other programs do not allow as large of a percentage of your gross income to go toward this debt. Department of Veterans Affairs (VA) The Department of Veterans Affairs (VA) guarantees mortgage loans from private lenders to honorably discharged veterans or current members of the military. With the VA backing these loans, eligible recipients can qualify for loans with lower interest rates and no down payment up to a maximum amount of $359,650 in most states. If you make a down payment you may qualify for an even larger mortgage, depending on lender restrictions. To qualify, only 41 percent or less of your gross monthly income can be tied into your mortgage debt and any other debts you may have. Community Homebuyer Program The Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) offer Community Homebuyer Program loans. These loans are generally for borrowers who make no more than the median income in the area the home they want to purchase is located. With a Community Homebuyer Program mortgage, borrowers are only required to make a 5 percent down payment on the home, 3 percent of which may be a gift, grant or unsecured loan. Typically, the maximum loan amount available from these programs is a little over $200,000. To qualify for one of these loans, only 38 percent or less of your gross monthly income can be tied into the home and any other debts you may have. State and Local Housing Agencies First time home buyers may be able to pay for a mortgage with mortgage revenue bonds or mortgage credit certificates offered by state and local housing agencies. Interest rates on these bonds or certificates are typically 1.5-2 percent lower than 30-year fixed interest rates. If you qualify for either of these mortgage options you will be responsible for paying a down payment worth 5 percent of the value of the home. The availability of these alternate sources of mortgage funds may be restricted by your income and the purchase price of your home. Major Lenders If you dont qualify for specialized mortgage assistance, many major lenders will require at least a 10 percent down payment or 5 percent if your credit is excellent. If you put down less than 20 percent youll have to purchase private mortgage insurance as you are considered at greater risk of loan default. This will add to the monthly cost of your mortgage. Fortunately, there are no purchase price or maximum loan funding restrictions for low down payment loans provided by major lenders. If you can afford a mortgage but cant afford 20 percent down, dont give up on your dream of home ownership. It may take a while longer to find the right lender for your own particular situation, but once you find one youll have overcome the biggest hurdle to owning your own home. |
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