There are a lot of people with decent incomes who would like to
buy a house right now but are afraid they can't come up with the
down payment. Fortunately, there are still mortgage options for
those with limited cash reserves.
One of the biggest misconceptions in the post-housing bubble era
is that you now need to put 20 percent down to get a mortgage.
While credit has become much tighter and no-money down loans have
virtually disappeared from the strictly private mortgage market,
it's still quite possible to get a mortgage for 5 percent down or
Here are four options for buying a home with a relatively small
1 - Conventional Mortgage
When people talk about a "conventional" mortgage, what they
typically mean is a conforming mortgage - one that conforms to
Fannie Mae and Freddie Mac guidelines so that it can be backed by
one or the other. This means a mortgage no larger than $417,000 in
most of the country, or a "conforming jumbo" of up to $625,000 in
certain high-cost markets.
Technically, Fannie Mae and Freddie Mac will still allow
mortgages with as little as 5 percent down. However, many lenders
will still require at least 10 percent and perhaps more if your
FICO credit rating is below 700. That's not as bad as 20 percent
down, but it's still a big pile of cash for many aspiring
homeowners, even for a home costing as little as $100,000.
However, both Fannie and Freddie offer special programs for
homebuyers interested in purchasing one of the foreclosed
properties in their inventory. Fannie Mae's HomePath program allows
down payments of as little as 3 percent, while Freddie Mac's
HomeSteps allows as little as 5 percent down.
Not only that, but both programs allow buyers to avoid paying
for mortgage insurance, which is typically required on any mortgage
with less than 20 down. You can also qualify for these programs
with less-than-perfect credit.
On the downside, your choice of homes may be somewhat limited.
The Freddie Mac financing program is presently available only in
the states of Florida and Georgia, though they expect to add more
in the near future. Fannie Mae's financing program is more widely
available but still can only be used to buy homes in the Fannie Mae
inventory of repossessed properties.
For more information, visit
2- FHA Mortgage
An FHA Mortgage is probably the most popular option out there
these days for a low-down payment mortgage, requiring as little as
3.5 percent down. Your choice of homes is also much broader than
under the two programs discussed above, although there are limits
on how much you can borrow with an FHA loan, depending on local
property values - $271,050 for a single-family home in most U.S.
counties, but as much as $729,750 in certain high-priced areas.
FHA mortgage rates are quite competitive compared to conforming
loan rates, although your costs for mortgage insurance will be
higher. The FHA charges an upfront insurance premium equal to 1.75
percent of the amount borrowed at the time the loan is closed, plus
an annual premium that can be as much as 1.25 percent of the loan
balance each year, although that can be reduced with a bigger down
payment or shorter loan term.
For more information on FHA mortgages, visit the Department of
Housing and Urban Development (HUD) web site at
3 - VA Mortgage
If you're a qualifying veteran or active-duty service member, a
VA mortgage has to be the best deal around. Other
service-affiliated persons can also qualify, including certain
civilian employees, survivors of service members and those
affiliated with the nation's service academies.
A VA mortgage allows you to purchase a home with no money down
and no mortgage insurance. That's because Uncle Sam guarantees part
or all of the loan, essentially providing lenders with the same
financial protection a hefty down payment would provide. As a
result, mortgage rates are also very attractive.
You can obtain a VA mortgage for up to $417,000 with no down
payment in most of the country, and up to $1 million or more in
certain high cost areas. In either event, you can increase your
borrowing power if you're willing to make a modest down
VA mortgages are offered through regular lenders who are
authorized to handle VA loans. For more detailed information, visit
4 - USDA mortgages
USDA loans are often overlooked by prospective homeowners,
despite the fact they're just about the only remaining source of 0
percent down mortgages available to the general public and that
they offer some of the best mortgage rates around.
Also known as rural development loans, USDA mortgages
technically are limited to home purchases in rural areas. However,
the definition of rural is fairly elastic and covers many
communities that most people would regard as suburbs or midsized
To qualify for a USDA mortgage, borrowers must meet certain
income limits that vary depending on the size of the family and
where they live. Generally, your earnings cannot exceed 115 percent
of the median income for your area. Homes purchased under the
program are also required to be "modest in size, design and
There can be a waiting list for USDA home mortgages because
funding for the program is limited. Still, for someone who's
looking for a starter home and doesn't live in a major metropolitan
area, this can be a very affordable route to home ownership.
For more information, visit
This article was first published on MortgageLoan.com at:
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