The 20% down-payment is one of the oldest mortgage folk tales. The truth is, most lenders and financial consultants would recommend having up to 20% of the total house price to use as the down payment. The median house price in the country is $306,700 at the moment, which means a 20% down payment would be: $61,340. I don’t know about you, but for me that’s a lot of money!
Mike Durr from Nations Reliable Lending in Kingwood, Texas said that the challenge most people have when it comes to buying a house isn’t being able to afford a mortgage, it’s being able to put money aside for the down-payment. If like most people, you don’t have savings of up to $60,000, don’t worry! Here are some alternatives:
Federal Housing Administration
A loan from the Federal Housing Administration would require a downpayment of just 3.5%. That takes off huge amounts of pressure to save quickly. 3.5% is a sweet deal, compared to the industry norm. However, this type of mortgage isn’t ideal for everybody. In order to qualify for one, you need a good credit rating (minimum 580). On occasion, they give mortgages to people whose credit scores are 500-580. In those cases, the down payment shoots up to 10%.
In addition to having a good rating, you will have to pay mortgage insurance to get the loan. This is an extra precaution for down payments lower than 20%. The Federal Housing Administration is also quite strict about how much you can borrow– usually 65% to 115% of the median home price in a particular area. That can fall anywhere between $271,050 and $625,000. Even with these conditions, the FHA is a fantastic option for first time buyers and those who don’t need to borrow more than $625,000.
For couples where one partner is a military veteran, the government has got your back! You could well be eligible for a Veterans Affairs loan, which requires a magnificent 0% downpayment. You won’t have to worry about extra payments like mortgage insurance either because the Department of Veterans Affairs already covers your insurance. If you’re wondering how this is possible, the government really does mean it when it says it is grateful for the work our service men and women do.
There are a few criteria you would need to satisfy in order to qualify. Most importantly, you need a certificate of eligibility which proves one of the requirements below:
- 6 years or more in the reserves or the National Guard
- You served for less than the time stated above because you were injured in service
- You are a widow or widower of a member of the military who passed away due to injuries sustained in battle, or who died in action.
- You have served on active duty during wartime for at least 90 consecutive days, or 181 consecutive days in peacetime.
USDA rural development loans
If you have a low or moderate income, the United States Department of Agriculture could also provide a loan with 0% downpayment. In this case, ‘low or moderate’ depends on where you live. In San Francisco (one of the most expensive places to live in the country), it is $141,000.
Although many of the properties gotten through this scheme are in more rural areas, you aren’t limited to those. Most people don’t even realize that 97% of the country is covered by these USDA loans. You can find out whether the house you want is covered at USDA.gov.
State and local programs
Many people aren’t aware of this, but there are 2,290 local down payment programs across all 50 states that can provide loans of almost $18,000 according to one report. If you go for this option, you will have to take a specially designed class for people looking to buy a house. You can check the relevant state housing agency website to see if your area has a program.
A credit union is a not-for-profit banking cooperative that usually offers its members loans at more competitive rates than a standard bank. They might be able to provide a mortgage with a small, or in some cases no down payment at all.
To be eligible for these loans, you may be have to satisfy some income criteria. For example, they could require your income to be no more than 80% of the median area. As with most loans, you will also need an above average credit rating. The criteria will be different for each union, so we suggest you check first. A recent offering from the San Francisco Credit Union provided 100% financing of up to $2 million for people with an average income of $219,000 and a credit rating of around 747.
Finding the right downpayment help in your area
The first step is to seek professional help if you aren’t sure which option is right for you. Speak to your mortgage broker, lender, or realtor to find out what programs you might qualify for. They can also give you advice on what kind of home you can afford and what other financial assistance you can get. To help you see clearly what kind of home you can afford, we’ve created a mortgage calculator that you can put to use right now.