20%. That’s the magic number for a down payment on a home, but honestly that’s not always realistic. Having a 20% down payment has many benefits - like already established equity in your home, lower monthly payments, and more options for loan programs – but you can still get a great home loan for your situation without immediately spending out of pocket. There are many options that have low – or even no – down payment that you might not expect.
If you’re set on a conventional fixed-rate loan but can’t afford the 20% down for it, these programs might be right for you. Backed by Fannie Mae and Freddie Mac respectively, these programs allow eligible first-time and repeat buyers to put as little as 3% down. This program comes with income limits that depend on the area you live in, and it requires mortgage insurance until you have 80% equity in the home; but it’s a great simplified program if you’re looking for the ease of the conventional loan without a big down payment.
Government Backed Loans
There are a few different low or no down payment options that are backed by the government and can be a great option for qualifying buyers.
VA - Backed by Veterans Affairs, VA loans are a great no down payment option that is offered to active and retired members of our Armed Forces. Although no down payment is required, there is an upfront funding fee, but it can be rolled into the loan. VA loans often come with favorable interest rates compared to other loan programs, and they come with additional benefits like hardship assistance and no prepayment penalties.
FHA - If you have a little bit saved up but not a lot, a loan backed by the Federal Housing Administration could help you get a competitive interest rate without the upfront cost of a large down payment. They’re designed for low-to-moderate income buyers and they have a lower credit score requirement, so they’re an obtainable option to a buyer with a less-than-perfect financial background.
USDA - If you’re looking for a home away from a bustling city, don’t neglect considering a loan backed by the US Department of Agriculture. USDA loans offer a $0 down option for homebuyers moving to rural areas. Don’t cross it off your list if you’re moving somewhere suburban though, because 97% of the US is considered rural. USDA loans come with competitive interest rates, 100% financing, and flexible credit requirements which make them an option worth researching for most homebuyers.
State Organization Down Payment Assistance
Most state housing associations have a down payment assistance or grant program that makes homebuying more realistic for everyone. Although each comes with its own set of rules and requirements, they can provide assistance and forgiveness for upfront costs like down payments, closing costs, or other costs associated with the homebuying process. Make sure you ask your lender about any options that could be available to you.
While 20% is ideal when you’re buying a home, it’s definitely not a requirement for getting a home loan. In fact, it’s possible to obtain a favorable interest rate with little or even no money down. The most sure-fire way to ensure you secure the best rate for your situation is to explore options with an expert. Ready to get started? Contact an experienced lender with Flat Branch Home Loans today.
