So you want to begin a search for a new home. Great! You have everything ready when you realize that you have not saved enough money for a 10% or larger downpayment. What now? What are your options?
A few years ago there were options for everyone, including those with no money down. Unfortunately, these options have become more limited with the tightening of programs over the past 2 years. Today, most programs want buyers to put down at least 5%, with all of this being the borrowers own savings.
So, what are your options?
The best one still out there is FHA financing, which is available with as little as a 3.5% downpayment and is now used over 50% of the time. In cases where a buyer may have issues with coming up with that 3.5%, he or she can use a gift from a family member as the downpayment. What many home owners don’t realize is that, FHA financing allows the entire 3.5% to be a gift.
Other programs will allow no money down, such as VA financing and USDA Rural Housing financing. Current and past veterans are qualified for 100% VA financing pending confirmation of their eligibility with the VA.
USDA Rural Housing loans require a few more steps and are only available on homes that are in a USDA eligible area. To determine if your home qualifies, enter your address into the USDA geocoder. If your property is found to be in a USDA eligible area, make sure you fall within the maximum income limits for your county. Only if you meet both these criteria will USDA allow you to borrow 100%. If you are elect to borrow 100%, be aware that you must also finance an additional guarantee fee into you loan amount. The one downfall to USDA homeowners should be aware of if that towards the end of the year, USDA is subject to running out of allocated funds. This year however, they must go to Congress to approve additional funds.
In addition to VA financing and USDA Rural Housing financing, the banks will, from time to time, offer programs to low/moderate income borrowers or for properties that are in low income areas to serve this market and fulfill their CRA(Community Reinvestment Act). These programs are often short term in nature and end when the banks have fulfilled their CRA requirement for the year.
The good news for many qualified buyers is that there are options out there. To see what is right for you it is best to speak to a licensed mortgage professional.
