One of the most difficult parts of getting a mortgage can be getting the money together for a downpayment. While many families can handle paying a monthly mortgage, gathering up tens of thousands of dollars at once simply takes longer than most are willing to wait. Fortunately, there are still some options available for those who want a mortgage but who don't want to deal with the massive down payment.
While some of these loans might be restricted to specific people, it's important to note that there are still plenty of no downpayment mortgages and low downpayment mortgages out there. If you're interested in finding one that might work for you, be sure to read on.
Perhaps the best-known no downpayment mortgages are those offered by the Department of Veterans Affairs. These VA loans are guaranteed to certain active service members as well as some qualified veterans. Historically, they've made up an important part of the home buying process for Americans.
You do not generally have to go through a special lender to get a VA loan. Instead, you go through a traditional private lender and the VA will guarantee your loan. You won't have to pay any kind of mortgage insurance with this type of loan either, but there is typically a funding fee attached.
The amount of the funding fee does tend to vary based on a number of factors. Depending on where and when you served, as well as how many VA loans you've gotten, the funding fee could be as high as 3.3 percent, though first-time borrowers who put down no money will get a fee of around two and a half percent. Regardless of the fee amount, though, the borrower can roll this fee into the overall loan.
Another major player in the no-downpayment loan game is the Navy Federal Credit Union. As you can imagine, not everyone can take out one of these loans. To get a loan, you have to be a member of the NFCU. To qualify to become a member, you have either be a member of the military, a civilian military contractor, a Department of Defense employee, or a family member of any of the above.
If you do qualify for one of these loans, you can expect to avoid paying a downpayment, but you will still have to pay a funding fee. The good news, though, is that members only pay a funding fee of about 1.75 percent, which is far lower than what you'd expect to see from the VA.
The USDA loan is one of the most popular home loans out there today. It's so popular, in fact, that the fund actually tends to run out quickly and those who want to get one of the loans have to apply relatively early on in the year.
This loan is meant to help with the development of some of America's rural areas. This does not, however, mean that the loans only apply to homes in the middle of nowhere.
Instead, it's very possible to get a loan in many well-built areas, so long as they fall into one of the areas on the USDA's development map.
There are some limits on this loan, though. Only first-time homebuyers can generally get the loan, though there are some exceptions to that rule. You also have to fall into specific income categories, which do get updated fairly often.
As with the other loans, there is a fee attached here. You'll get this kind of loan from a traditional lender and you'll need to pay a fee of one percent as a guarantee. The good news, though, is that this fee can be rolled directly into your loan so you won't actually have to pay it up front. You'll also pay an annual fee of .35 percent of your original loan balance when you choose one of these loans.
If you don't fall into one of these categories, you may still have to make a down payment in order to get your dream home. The good news, though, is that you can reduce your downpayment by a bit if you're willing to get private mortgage insurance.
If you choose private mortgage insurance, you'll be able to bring your initial down payment all the way down to around three percent. Getting private mortgage insurance is actually cheaper than getting FHA insurance, but it does have some fairly strict credit requirements.
Private mortgage insurance also has an edge because it can be canceled. Once you've paid out eighty percent of your home's value, you can cancel the insurance and stop paying the cost each month. If you pay your mortgage down diligently, the cost of private mortgage insurance can actually be far less than the cost of even a reasonable down payment.
By far the most popular way to save money on your home loan is to get a loan through the Federal Housing Administration. The FHA loans are known for having low downpayment mortgages with a downpayment of around three and a half percent, and they're available to those with imperfect credit scores.
Getting an FHA loan is not without its costs. You will have to get FHA insurance, which runs about 1.75 percent of the total yearly cost of your mortgage. If you choose a thirty- year mortgage, this also means that you'll end up paying about eighty hundred dollars for every hundred thousand dollars borrowed each year. This can bring up your overall loan payment by a good bit, but it's still generally less money than having to save up for a bigger down payment.
It should also be noted that FHA loans do have requirements. The low downpayment mortgage option still requires having a credit score in at least the high five hundred, as well as having a specific debt-to-asset ratio. The property that you buy must also pass an assessment by the FHA, which does tend to be a little more stringent than a typical inspection. Even with that said, this is one of the best overall options for reducing your down payment if you have imperfect credit.
Don't get discouraged by the idea of a down payment if you are looking for a loan. Make sure to explore all of the options above so you can determine whether one of them is right for you. There are plenty of programs out there that allow individuals to put down less money, which in turn makes home ownership much more attainable. If you're ready to buy, try to find a program that will work with your current ability to pay.