A Few Ways to Minimize Your Down Payment

Buying a home can be stressful before you even begin searching for a home. Coming up with enough money to cover the down payment is often more difficult than people are led to believe. The majority of articles found suggest a buyer has at least twenty percent of the cost available for a down payment. This is in addition to money set aside for closing costs and other fees related to the sale. Many articles also discuss ways you can save money toward a down payment, but finding information on how to actually lower the amount you need for the transaction is hard to come by.

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5 Loan Types for a Low Down Payment

1

USDA Loans

USDA loans are offered by the Department of Agriculture to enable individuals in rural areas to afford homes. In order to qualify for a loan, you must meet certain income restrictions, putting you below what the government considers low-income. These loans are offered with very little or no down payment. The loans are more restrictive than traditional ones, however. First, there are income limitations. In addition, the property you are buying must be in an approved location. Rural does not mean the home needs to be out in the country and far from neighbors, but the population of the area you are buying in must be under 35,000 residents. The house must be used as the buyer’s primary residence and can’t be income-producing. The house must also meet size and structural guidelines. If the buyer should move or sell the property before the loan is paid off, the remaining monies must be paid immediately. An additional benefit of this type of loan is that the terms for repayment are often longer than that of other loans.

2

Piggyback Loans

Piggyback loans are essentially two loans taken at the same time. One of the loans is a mortgage and the other is most often a home equity loan. The most popular is called an 80/10/10 loan but there are other programs out there. You just need to sit with your lender and explain that you want to stack your loans. In some cases, the bank will work with you for both loans. In others, the bank will refer you to another bank that they will work with for the second loan. This avenue will decrease the amount of money you need to have for a down payment but will also increase the number of payments you are responsible for each month. For this reason, qualifying can be harder than with other mortgage programs. Not only will your income level need to comfortably support the added cost, but you will also need a higher credit score.

3

FHA Loans

An FHA loan is backed by the federal government and designed to help low or moderate-income families afford to buy a home. Typically, you can end up paying only 3.5 percent of the home value if your credit score is at least 580. For those who have a credit score between 500 and 579. the loan is still a possibility, but you will need to have ten percent of the down payment. These loans are often popular with first-time homebuyers who haven’t had years to save up a down payment or get a high credit rating. Another advantage is that the entire down payment can be paid for with gifts or grants from assistance programs and doesn’t need to come from your savings.

2

Veteran Programs

The Department of Veterans Affairs offers a mortgage program to qualifying veterans and their families. This loan requires no down payment. The amount the borrower is eligible for may be limited, but the program does not require a good credit rating. This is one loan you may need to research before pulling the trigger. While the program itself does not require a minimum credit rating, the determined and approved lending institution may.

3

Good Neighbor Next Door Loans

The Department of Housing and Urban Development (HUD) offers a lending program that is designed to get quality homebuyers in neighborhoods that may traditionally be avoided. This program lends to teachers, law enforcement workers, firefighters, and emergency medical technicians. Individuals interested in this program may purchase HUD houses at half the appraised value. In addition, the required down payment can be as low as a hundred dollars. The one limitation is that the buyer must live in this home as their primary residence for at least three years.

7 Strategies to Reduce Your Down Payment

1

Think Smaller

This hint won’t exactly create a situation where you can lower the down payment on a particular house you are looking at. It will, however, make it possible to need a smaller amount of money. Do you really need a home the size you are looking for? Ask yourself if you might be just as happy in a smaller home or one located in a less expensive geographical area. Both of these will see the overall cost of the house being lowered. This translates into less money needed to cover the down payment. Downsizing may also make it possible to realize a greater number of options opening up in regard to places that will work with you or mortgage assistance that may be available.

2

Private Mortgage Insurance

Private mortgage insurance (PMI) is designed to ensure the lender that they will be given their money if you should stop making payments. The cost is usually equal to an upfront one percent of the loan value and then a small percentage of the principal yearly, divided into monthly payments. This insurance will increase your mortgage payments slightly, but that is an acceptable trade-off for many who need the lower down payment now. Once your principal amount goes down to a pre-determined percentage of the home’s value, you are no longer required to make the monthly premium payments on the insurance. This insurance is more for the bank’s peace of mind when it comes to taking a risk of loaning you the money for a mortgage. You will still need to repay the loan even if you go into foreclosure, but the bank will take a lower loss should this happen.

3

Raise Your Credit Rating

Numerous programs work with people who have a poor credit history or are currently experiencing lower credit scores. This is also the case with individuals who may have non-traditional credit histories and need to prove their creditworthiness through means such as rental and utility payments. On the other hand, a good credit score can open up more doors for the individual seeking a mortgage loan. The higher your credit score, the more likely you will find an institution that is willing to work with you regarding a lower down payment. If you are willing to wait a bit before beginning your search, you can spend time working on building your credit score. One way to do this is to take out a smaller personal loan and pay it back promptly.

4

Seek Down Payment Assistance

The Department of Veterans Affairs offers a mortgage program to qualifying veterans and their families. This loan requires no down payment. The amount the borrower is eligible for may be limited, but the program does not require a good credit rating. This is one loan you may need to research before pulling the trigger. While the program itself does not require a minimum credit rating, the determined and approved lending institution may.

5

Lender and Seller Credits

These won’t necessarily lower the amount of your down payment, but the money saved with these credits can be applied to your down payment. This will make it easier for you to cover the cost. Lender credits may take the form of the lender covering things like the closing cost. This may end up requiring you to pay a higher interest rate, but the increase will be less noticeable as it will be spread out over time. Seller credits are another option. If you pay the asking price, a seller may be willing to cover things like the closing cost. Again, this won’t lower the amount of your down payment, but it will give you more money towards it.

6

Doctor Loan Programs

This loan program was designed for doctors who are just starting out in their careers and who may be trying to pay off their student loans. It is open to physicians, dentists, residents, and fellows. The banks that participate in this program vary in what they require for a down payment, but they ask anywhere below ten percent, with some requiring none at all. There is no need to purchase private mortgage insurance with this program.

7

Check Credit Unions

Many credit unions will offer their members mortgages and other loans with fewer restrictions in terms of down payment. The drawback to this is that you have to be a member of the credit union. Many have restrictions and are dedicated to employees in a particular profession or at a certain place of business. Promotions are consistently changing within each lending place, so you may need to wait a while for a deal you feel comfortable with. The good thing, however, is that getting a mortgage that requires zero down payment is a real possibility if you are willing to wait.

Wrapping Up: Ways to Get a Lower Down Payment

You can spend several years trying to save up for a down payment of twenty percent on a mortgage, or you can seek out ways to get a lower down payment. It could be possible that the latter option could see you in a new home within a matter of months. With so many options available, it is impossible to know all of them by going it alone. Working with a lender offers you the best chance of finding more options. The help is out there if you know where to look.

Investing in your future can be both exciting and stressful. Being able to reduce the amount of money you need upfront can make the process much smoother. If you are interested in finding ways to help reduce your down payment, reach out to one of our representatives and schedule a consultation. It is our greatest pleasure to help individuals and families find their forever homes. This is just a sampling of the help that is available for those seeking mortgage assistance. You may be pleasantly surprised at just how affordable a new home can be for your family.

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