Alternatives To The 20% StandardIn the early days of mortgage lending, a 20% down payment was required by most lenders as protection against the possibility of homebuyers defaulting on their loans. But as the cost of housing in American has risen, the 20% down payment has become a significant obstacle for many buyers. In order to make homeownership more affordable, a lot of lenders now offer home financing programs that require little or even no money down. These new programs include:
Conventional Loans With Private Mortgage Insurance
Many lenders will make loans with little required as a down payment, as long as the borrower has adequate credit. These programs require the borrower to make a payment for private mortgage insurance (PMI) along with their monthly mortgage payment. Talk to your home mortgage consultant about your options, and how PMI payment will affect your total monthly payment. PMI can open doors for buyers challenged by a lack of a large down payment funds. And it’s not something you have to live with forever. Once you establish a 20% equity share in your property – through appreciation and paying down your loan – you can eliminate the PMI.
The United States Department of Veterans Affairs (VA) has been providing no-money-down loans for veterans and their families since the inception of the GI Bill. However, few people realize that the general public also can get VA financing if they buy a property that’s been foreclosed by the Department of Veterans Affairs. Your real estate agent can help you locate these foreclosures in your area.
The Federal Housing Administration (FHA) also makes loans with very little down payment required (1.5% to 2.25%). Some of these loans are known as “bond loans” – state and local programs designed to revitalize certain neighborhoods, help potential buyers in lower income brackets, or encourage homeownership among set groups like teachers and police officers.
Additionally, an FHA loan coupled with a municipal bond or qualified non-profit down-payment assistance (DPA) program, many qualified borrowers can close with little or no money down.