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.
The problem is that 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’s true lenders feel it’s 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.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.
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. The current maximum loan amount in most urban markets is $151,725. 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.
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.
Department of Veterans Affairs (VA): VA mortgages allow veteran or active service personnel purchase home with no down payment, up to the current maximum price of $184.000. 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 debt.
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 loan officer 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 down payment!
Piggyback mortgage strategies incorporating up to 80% first mortgage and up to an additional 45% in the form of a second mortgage or equity line of credit can allow borrowers with all types of credit to own a home with no money down.
FHA-VA and other programs are the first option most homebuyers think of when they think of low or no down payment options, however, there are a number of lenders who offer FHA mirror loans. They have the same kind of alternative credit qualifications where a borrower can have not so good credit or not even have to have a credit score to qualify.
Some advantages of these programs is that in most cases they do not have the 1.5% PMI paid upfront as required by FHA. This paired with a strong Realtor who can negotiate 3-6% seller concessions (seller paying for) of closing costs can often be a great way to get into a new home with absolutely no cash out of pocket.
The only thing that is necessary is having a strong enough realtor to to negotiate the deal and the right mortgage broker who knows which of the many lenders who offer such products best fits your scenario.
The right Mortgage Broker can pick through the lenders to suit your situation best regardless if you have no credit score, low credit scores, few open accounts, no money to out down, late payments, short job history and other factors.
When you are purchasing a home and expect to put no money down, you must remember to think about moving expenses, homeowners insurance, appraisal, & a home inspection. Most of these things are out of pocket expenses.
It is also important to note that many lenders consider a first time home buyer with a good credit score or no credit score, as an "A" paper loan.
Often times, when considering no down or low down payment programs a 2 year fixed from a "sub-prime" lender is a viable option. The big advantage of such a program is that there will be no mortgage insurance. The rate will be a little higher but borrowers must keep in mind that the interest paid from the higher rate will be tax deductable while the mortgage insurance premium is not. As a qualified mortgage specialist I can help you sort through the numbers and detirmine which program is right for you.
In the case of many of today's lenders, there may not be any down payment required. Lenders are constantly looking at making more and more programs available to people looking to purchase a new home. Lenders are willing to do 100% loans, with a credit score of 560 or better. This may not be the best option, that is why it is best to know that there are several low down payment programs, that may also be available to you.
Lending limits have been raised, and now more than ever, is best time to buy a home.
In addition there are down payment assistance programs that can help with thousands of dollars for down payment and closing cost. Most cities have grant programs available that don't have to be paid back.
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. Currently, the maximum loan amount available through these programs is $203,150.
