How first-time buyers with or without a small down payment can buy their own home
First-time buyers can become homeowners even if they have little or no money for a down payment.
This is possible through a range of federal programs, which offer funding of up to 100%, excluding closing costs.
This is because a recent survey by the Lending Tree Loan Market found that 48% of renters fear they will never be able to buy a home.
Among respondents, down payments were the biggest barrier to homeownership, with 54% saying they couldn’t afford to put money aside.
Other issues were soaring house prices in the area and difficulty qualifying for a mortgage due to a low credit rating.
Prices in the housing market have skyrocketed since the start of the coronavirus pandemic.
If you don’t have enough savings for a substantial down payment, or none at all, we’ve rounded up your options below.
Just be aware that you will likely qualify for better rates if you have some savings to use for the down payment.
If you don’t have a deposit
USDA loans are for rural and suburban home buyers who typically cannot get a traditional mortgage.
The loans are guaranteed by the rural development program of the Ministry of Agriculture and have no down payment requirement.
There are income limits for securing a home loan guarantee, which vary depending on where you live and the size of the household.
To find the limit for the county where you live, check the USDA website.
To apply for a USDA secured loan, you must speak to a participating lender.
Veterans Affairs Loans
Veterans Affairs (VA) loans are intended for current and veteran military personnel and eligible surviving spouses.
These loans often do not require a down payment until the sale price is greater than the value estimated by an expert.
To get it, you will need to apply for a certificate of eligibility for a VA backed home loan.
You will then show it to your lender when you apply for a mortgage.
Just keep in mind that you may need to pay VA financing fees, which are one-time fees that help lower the cost of the loan for U.S. taxpayers.
If you have a small deposit
FHA loans – 3.5% -10% down payment
A Federal Housing Administration loan is a mortgage loan insured by the government agency and issued by an FHA approved lender.
Because the FHA will pay your lender a debt if you default on the mortgage, the lender bears less risk than usual.
However, you also agree to take some risk by paying two mortgage insurance premiums (MIPs).
The initial premium is set at 1.75% of the loan amount, while the rate you pay over the life of the mortgage depends on the amount you borrow.
In 2021, you can borrow up to 96.5% of the home’s value with an FHA loan, which means you’ll need to make a down payment of just 3.5%.
To be eligible, you must have a credit score of at least 580.
If your credit score is below 500 and 579, you can still get an FHA loan as long as you can make a 10% down payment.
HomeReady Mortgage – 3% Down Payment
Backed by mortgage giant Fannie Mae, the HomeReady mortgage is available to homebuyers with as little as 3% down payment.
You need to have a credit score of at least 620, but you can get even better deals if it’s over 680.
To qualify, you cannot earn more than 80% of the Area Median Income (AMI) for the location of the property.
You can use an online tool from Fannie Mae to check out what MAI is in your area.
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