Owning a home is a dream many people share, but more times than not, home buyers are weary of the 20% down to purchase a new property. While the majority of home buyers are generating enough income each month to afford a mortgage, not everyone has enough saved in the bank.
If you’re in the market for a new home, but would like an alternative to having to put 20% down make sure you read this article where DRU covers a variety of available loan programs that require very little to no money down!
Today, DRU will introduce other loans that do not require 20% down to buy a home.
Home Buyers Don’t Need to Put 20% Down
With the home loans available today, buyers have the opportunity to not make a 20% down payment when buying a home in the U.S.
Although the only way of buying a home was with 20% down in the past, these are no longer the circumstances! In fact, the first time a buyer didn’t need 20% down was when the FHA Loan was introduced to the public. While this is a common misconception, it is more than likely a result of a conventional mortgage, where putting 20% down means private mortgage insurance or PMI is not required.
No Down Payment: VA Loans (100% Financing)
If you’re a member of the U.S. Military or the surviving spouse, you are eligible for a VA loan which is a no-money-down program. Similar to FHA loans, the VA loan has an agency guaranteeing repayment to the lenders making the loans. This loan in particular is guaranteed by the U.S. Department of Veteran Affairs.
VA Loan Qualification
The qualification process for a VA loan is simple and straight to the point. In order to be eligible for a VA loan, you must be an active duty or an honorably discharged service personnel. Also, if you were in the Reserves or National Guard for a minimum of 6 years or are the spouse of a service member who was killed in the line of duty, you are also eligible!
Key Benefits of VA Loans :
- You may use intermittent occupancy.
- Bankruptcy and other derogatory credit do not immediately disqualify you.
- No mortgage insurance is required.
Depending on which U.S. military base the home buyer would like to buy near, loan sizes accumulating to $762,525 are available in high-cost areas. Since there are bases in California, San Francisco, and Honolulu, Hawaii this can also be helpful.
Low Down Payment: FHA Loans (3.5% Down)
The FHA mortgage is can be somewhat misleading because it doesn’t actually put out any loans. Instead of supplying home buyers with a loan, they insure loans.
While they won’t insure every loan, the FHA published a series of requirements for the loans it will insure. When you’re in the home buying process and the bank funds and underwrites your loan if it meets the FHA guidelines they will agree to insure that loan against loss!
The FHA mortgage was made popular through their lenient approach to credit scores and down payments. If you have a low credit score with a reasonable explanation for the low FICO there is a high probability that they will insure your home loan. A down payment of 3.5 percent is available in all U.S. markets f approved for an FHA mortgage with the exception of a few FHA approved condos.
Benefits of the FHA Loans:
- Your down payment may consist entirely from “gift funds”.
- Your credit score requirement is 500.
- Mortgage insurance premiums are paid upfront at closing, and monthly thereafter.
If you were faced with a recent short sale, foreclosure, or bankruptcies, the FHA will also support your home purchase through their Back to Work program.
*The FHA insures loan sizes up to $726,525 in designated “high-cost” areas nationwide. High-cost areas include Orange County, California; the Washington D.C. metro area; and, New York City’s 5 boroughs.*
Low Down Payment: Conventional Loan 97
Fannie Mae and Freddie Mac have created the Conventional 97 loan program which is a 3% downpayment opportunity and is usually a lower cost option compared to the FHA loan.
Unlike other loan programs, the 3% downpayment can be a “gifted fund”. The only requirement for this is that the person gifting the funds is related by blood or marriage, via legal guardianship or domestic partnership, or is a fiance / fiancee.
The Conventional 97 basic qualification standards are :
- Loan size may not exceed $484,350, even if the home is in a high-cost market.
- The subject property must be a single-unit dwelling. No multi-unit homes are allowed.
- The mortgage must be a fixed rate mortgage. No ARMs via the Conventional 97.
The Conventional 97 program does not enforce a specific minimum credit score beyond those for a typical conventional home loan. The program can be used to refinance a home loan, too.
At Del Rey Urban we specialize in finding you the home of your dreams and helping make that dream a reality. From design and construction to getting you a loan that best suits your financial situation. Our team of dedicated specialist is here to help you through the process of buying your next home.