Consumers who were approved for mortgage loans were required by lenders to make down payments equal to 20% of the value of the home they were interested in buying. This helped to solidify the lender’s trust in the buyer and minimize their risk in giving out a loan. With many lenders today, the mandatory 20% down payment is now a thing of the past. The 20% down payment requirement put many lower-income families right out of the market for buying a home.
Individuals and families looking to purchase a home are more able to do so today than they once could. Primarily because many private lenders and government sponsored mortgage options have opened new avenues in lending for moderate to low-income families to afford their own home. The avenues require little to no down payment during closing to complete the purchase of a home.
Of course, with any “too good to be true” offer, there is a catch – but it is far more manageable than many may think. The loan options require less up front and a little more over the life of your loan. Interest rates may be a bit higher for these loans and, if you do put less than 20% down, be prepared to have to pay PMI – or Private Mortgage Insurance. PMI is wrapped into your loan amount and part of your monthl payment; it helps reduce the risk for lenders by collecting extra funds each month in the event you default on your loan.
Overall, these additional amounts are more affordable when divided amongst monthly payments rather than as a bulk amount before you are allowed to move in. Some of the little to no down payment loan options include the following:
Federal Housing Administration (FHA)
An FHA loan is a popular option among hoebuyers looking to put down as little as possible. On average, those who qualify, only need to put 5% down; although for some individuals (like those with excellent credit history) may be able to put down as low as 3%.
You will be required to pay PMI, but this is allowed to be wrapped into your total loan amount, as can many of your closing costs – so you end up paying as little out of pocket as possible.
Fannie Mae & Freddie Mac
As part of a community homebuyer program, these two federal mortgage companies offer loan programs to qualifying buyers with three to five percent down. Qualifications include restrictions on the home type, income restrictions, and debt-to-income ratio. These programs are designed to help those with lower credit scores and low to medium income have affordable house financing options. For both Fannie Mae and Freddie Mac, these programs put a cap on how much can be borrowed, which is at a little over $200,000.
For veterans and active members of the military, loans are offered just for you with no down payment and lower interest rates. If you are able to put money down towards your home purchase, do so – as those who do can be eligible for a large home loan amount.
Don’t let something – even 20% of something hold you back from owning a home. There are many options available to qualify for a home loan, even if you have low credit. Contact one of our loan specialists today to see which loans you may qualify for and start the process towards getting pre-approved for a home loan today.