Coming up with a twenty percent (20%) down payment is difficult, if not impossible, for many people who would like to buy a home. Even if you manage to save up that much money, it can create a hardship if all of your savings have been spent on the purchase of a home at a time when you need money for moving expenses and furniture for your new place.
If you’ve already read about Caliber’s loan programs, you know that a twenty percent (20%) down payment is not always necessary. You should also know that paying a smaller down payment isn’t necessarily risky or financially irresponsible. It saves you money upfront and you’re still getting the equity of investing in a home. Many excellent loan programs allow you to pay as little as three and a half percent down (3.5%), and some even offer no down payment at all.
Below are some loan programs from Caliber Home Loans that offer low down payment options:
One of the easiest loans to qualify for with a low-down-payment is an FHA loan. The government doesn’t fund the mortgage, but the Federal Housing Administration does back the loan. This allows lenders to take a bit of a risk on the lower down payment.
With an FHA loan, you can put down as little as three and a half percent (3.5%) for a down payment. If the home is $200,000 that means instead of coming up with $40,000 for a twenty percent (20%) down payment, you’ll pay only $7,000.
In addition, credit requirements are more lenient with this type of low-down-payment mortgage. Ask your Caliber Loan Consultant about an FHA loan.
Another government-backed program that offers low-down-payment mortgages, a USDA loan can help you buy a home with no money down at all. The main qualifier is that you have to buy a home in an eligible rural area or a small town that’s been classified as rural by USDA. As long as you meet the income, credit and location requirements, you can get one hundred percent (100%) financing to help you purchase your home.
Do you have a history of military service? You might qualify for one hundred percent (100%) financing with the help of a VA loan. This program helps U.S. veterans, active duty service members, and select widowed military spouses to buy a home with no down payment.
HomeReady™, Home Possible,® and HomeOne℠ are backed by Fannie Mae or Freddie Mac, and you only need to put three percent (3%) down to purchase.
These programs are aimed at homebuyers with low and middle incomes and each one has additional special features. For example, HomeOne℠ is for first-time homebuyers. The credit requirements for these can be more stringent than what you see with the FHA loan, though.
Conventional loans are a form of mortgage lending that isn’t guaranteed or insured by the government, like FHA, VA or USDA loans. Because they aren’t backed by a government agency, the requirements are a little stricter and usually require at least a 620 credit score. But here’s the good part: interest rates for conventional loans are typically some of the lowest available, the appraisal requirements are less strict and down payments can start as low as three percent (3%).
You may be able to qualify for a conventional loan if you have good credit and a stable employment history.
After reading all this, you may be wondering why anyone would put twenty percent (20%) down. If you are able to make that large of a down payment (or more), there are certainly advantages. Your substantial down payment means you’ve already invested a good amount of money, and in turn, you’re seen as a safe bet. That generally allows you to secure a lower interest rate, which will save you lots of money in the long run.
A large down payment also means you borrow less, which not only results in lower interest rates long term but smaller house payments each month.
When you buy with a low-down payment, you are often subjected to the expense of private mortgage insurance (PMI) or Mortgage Insurance (FHA). This is a monthly fee the lender charges to secure their investment, which is not always required with a larger down payment.
Having said all that, not having the cash on hand to make a big down payment shouldn’t keep you from buying your own home. Even with a low or no down payment, you’re still investing in real estate while buying a place to live.
To read more about down payments, read How much down payment do I need? It’s a good summary of all of the down payment options.
All of these are from the categories mentioned above. Click on any of them to read about that program’s requirements, benefits, and features. Your Caliber Loan Consultant can answer your questions and advise you on the best loans for you.