Low down payment Construction Loans
You Don't Need 20% Down To Buy A Home
That fact, plus a steady rise in U.S. rents, are among the reasons why first-time home buyers now account for close to one-third of today's home purchases.
This is higher market share as compared to recent years; a figure buoyed by four key factors.
Second, according to mortgage-software provider Ellie Mae, U.S. lenders are approving more purchase loans than during any period this decade.
Nearly three-quarters of all conventional purchase loans are making it through underwriting and getting to closing.
No matter how little you want to "put down" on a home, there's a mortgage program which can help you.
Here's a preview of eight popular loans available to today's first-time and repeat home buyers. Each is commonly available and rates can be previewed anytime online.
FHA Loan (3.5% Down Payment)
FHA loans allow for a 3.5 percent down payment. Insured by the Federal Housing Administration (FHA), these loans are among the flexible and forgiving for today's home buyers.
FHA loans are typically best-suited for low-down payment buyers with average or below-average credit scores; and buyers looking at multi-unit homes (e.g.; 2-unit homes, 3-unit homes, and 4-unit homes) as a primary residence.
FHA loans require mortgage insurance premiums (MIP) but, in January 2015, those FHA MIP costs were reduced to help keep FHA loans affordable for buyers using the program.
Noteworthy: FHA loans are assumable, which means that a future buyer of your home can purchase your home with its FHA loan - and its mortgage rate! - still attached. You can actually pass today's low rates on to tomorrow's buyer of your home.
The HomeReady™ Mortgage (3% Down Payment)
The HomeReady™ mortgage is a low-downpayment loan available via Fannie Mae.
The program allows for 3% down, grants access to below-market mortgage rates, and offer discounted rates for private mortgage insurance.
HomeReady™ also gives mortgage applicants the ability to use income from all people living in the home toward the actual mortgage approval. This can include parents earning pension or social security income, as examples; or children earning wage income or income of some other type.
Noteworthy: The HomeReady™ program is available in low-income areas, areas with a high minority population, and areas affected by a natural disaster. However, you do not need to be a low-income household or a minority to get approved. You must only own a home in a pre-approved area.
Conventional 97 (3% Down Payment)
The Conventional 97 is a special program which was recently reinstated by the Federal Housing Finance Agency (FHFA), which is the parent of both Fannie Mae and Freddie Mac.
The Conventional 97 requires a down payment of just 3 percent and, among other benefits of the program, the Conventional 97 allows a buyer's down payment to be gifted by a third-party.
The only requirement is that the gifter has a blood or marriage relation to the buyer of the home; or is a legal guardian, domestic partner, or finance/fiancee.
Noteworthy: The Conventional 97 program is often more costly on a monthly-basis than a comparable FHA mortgage. However, because the program's mortgage insurance can cancel in as few as 12 months from the date of purchase, its long-term costs are often much less.
Good Neighbor Next Door ($100 Down Payment)
The program is available to members of law enforcement; firefighters or emergency medical technicians; and, teachers of pre-K through 12th grade.
Buyers in the program also receive a home purchase discount of 50% - yes, 50 percent! - in exchange for agreeing to make the home your sole residence for 36 months, at minimum.
Via Good Neighbor Next Door, then, a $100, 000 home can be bought for $50, 000.
The Good Neighbor Next Door program allows buyers to use FHA, VA, or conventional mortgage financing which helps to ensure low interest rates.
Noteworthy:The Good Neighbor Next Door program allows you up to 180 days to move in to your new home so, if you plan to make repairs prior to Moving Day, there's no reason whatsoever to have the house work done hastily.
Home Construction Loan (3.5% Down Payment)
The 203k loan comes in two flavors. The first is the Streamlined 203k, which is used for less-extensive projects and which is limited to $35, 000 in total repair costs.
The more common 203k loan is the "standard" 203k, which is used for projects which involve moving walls or replacing plumbing; or doing anything else which would prohibit you from living in the property while the work is being performed.
The standard 203k can also be used for landscaping or converting a home with more than 4 units into a 4-unit, owner-occupied home.
Noteworthy: Because the 203k loan is backed by the FHA, home buyers using it remain eligible to use the FHA's popular refinance
Piggy-Back Mortgage (10% Down Payment)
The "Piggy-Back" Mortgage is a not really a mortgage at all - it's two mortgages, one mortgage "piggy-backed" on top of another in order to borrow 90% of a home's purchase price.
Sometimes called an, the Piggy-Back has the buyer bring a 10% down payment to the closing table and, to avoid having to pay mortgage insurance, two mortgages are issued instead of one. The first mortgage is typically a conventional loan, issued for 80% of the home's purchase price.
The second mortgage is typically a home equity line of credit (HELOC), issued for 10%.
Piggy-Back Mortgages are often used by home buyers who plan to pay down or reduce the balance on their second mortgage within the first 24 months of homeownership.
Noteworthy: The second mortgage of a Piggy-Back Mortgage is often adjustable and tied to Prime Rate, which is tied to the Fed Funds Rate. When the economy is expanding, the Fed Funds Rate can jump unexpectedly, substantially raising your overall monthly housing payment. Be careful when selecting a mortgage linked to Prime Rate.
USDA Loan (No Down Payment Required)
The USDA loan is guaranteed by the U.S. Department of Agriculture and allows for 100% financing. Formally known as a "Section 502" loan, lenders sometimes call the USDA loan a "Rural Housing Loan", which is a bit of a misnomer.
USDA loans are available in non-rural areas as well, including within many U.S. suburbs.
The big draw of the USDA loan is that its mortgage rates are often the lowest of all the low- and no- down payment mortgage programs; and its mortgage insurance requirements are quite low, too.
As compared to FHA loans, for example, USDA mortgage insurance costs are half which is why many of today's buyers will opt for a USDA loan over an FHA one - even if they plan to put 3.5% down. Simply, USDA loans are more economical.