A Guide To Low Down Payment Mortgage Programs
By W. Troy Swezey
There's no question about it: Buying a first home is a big
financial commitment. In most cases, a home is the largest single purchase an
individual or family will make in a lifetime. However, because of the tax
advantages afforded to homeowners, buying a home also can be one of the best
financial decisions you'll ever make.
Problem is, many would-be homeowners remain renters simply
because they mistakenly believe mortgage lenders require that buyers come up
with 20 percent of the purchase price as a down payment. While it is true
lenders feel it is less risky to work with buyers who are able to bring a
substantial down payment to the table, the standard 20 percent requirement is
fast becoming a relic of the past. In recent years, lenders have become more
flexible in working with first-time homebuyers by creating a variety of special
programs that require only a small down payment. These programs, combined with
the most favorable interest rates in two decades, have encouraged growing
numbers of renters to consider the tremendous benefits of home ownership.
While the list of programs offered by individual lenders is too
extensive to mention in detail, here are some common programs you are likely to
come across as you work with your real estate agent to purchase your first home:
Federal Housing Administration (FHA): FHS mortgages allow
homebuyers to purchase a home with as little as a 5 percent down payment, and to
finance all non-recurring closing costs. In addition, borrowers are allowed to
use up to 41 percent of their gross income toward paying mortgage debt - well
above the ratio allowed under most private programs.
Department of Veterans Affairs (VA): VA mortgages allow veteran
or active service personnel purchase home with no down payment. However, there
is no purchase price limitation for buyers able to make a down payment. Like the
FHA program, VA borrowers can put up to 41 percent of gross income toward their
Mortgage Revenue Bonds and Mortgage Credit Certificates:
Mortgages funded with these instruments typically require a minimum of 5 percent
down and have interest rates that are 1.5 to 2 percentage points below
conventional 30-year fixed rates. These types of loans, offered by state and
local housing agencies, are available only to first-time homebuyers. There
generally are income and purchase price caps that vary, depending on where you
plan to buy.
Private Mortgage Insurance: Most major lenders offer privately
insured mortgages, which generally require a 10 percent down payment (although
some lenders offer loans with a 5 percent down payment to buyers with
exceptional credit). These loans typically are not limited by maximum loan
amount or purchase price limitation.
Community Homebuyer Program: Through their networks of mortgage
lenders, the Federal National Mortgage Association (Fannie Mae) and the Federal
Home Loan Mortgage Corporation (Freddie Mac) offer Community Homebuyer Program
loans. These programs require a 5 percent down payment, 3 percent of which may
be a gift. To further help buyers qualify, applicants may use 38 percent of
their gross income.
Clearly, there are a lot of options for first-time homebuyers.
While lenders will be more than happy to share information about their own
programs, you can save yourself a good deal of time by first selecting a
professional real estate agent who is experienced in working with first-time
buyers in the areas where you plan to buy.
An agent who focuses on first-time buyers will know from
experience which lenders in your area offer a low down payment program that will
meet your unique needs.
Today, taking the first step toward owning your own home is
easier than before. Your real estate agent is your best resource for finding
innovative ways to help you come up with a down payment and qualify for
financing. There's certainly no need to wait until you've saved a 20 percent
W. Troy Swezey is the author of "THE SMART WAY TO
LOOK AT HOME
IMPROVEMENTS." As a Realtor at Century 21 Paul & Associates, he
has helped many individuals with their real estate needs. Visit
his web site to download his free e-book, "REAL ESTATE SECRETS
EXPOSED". http://www.TroyIsMyRealtor.com or mail to: