How to Find 0% to 3.5% Down Payment Mortgages
“Where to get the money for the down payment?” is a common question that families ask themselves when buying a home. But, there exists a great opportunity to buy a home through government-backed programs that offer little to no down payments on the home loans. These mortgages range from 0% to 3.5% down, and they’re more attainable than you might think.
Zero Down Payment Home Loans
Home loans backed by the U.S. Department of Veterans Affairs are popular because they require zero down payment. What’s more is that no private mortgage insurance is needed. VA offers mortgage loans for U.S. servicemen and women, veterans, and their surviving spouses that meet these eligibility requirements. VA loans can be relaxed in their credit score and debt-to- income ratio requirements. Under VA-backed loans, the seller may even pay a portion or all of the closing costs.
Another zero down payment home loan option is one being guaranteed by the U.S. Department of Agriculture. The USDA makes mortgages available to people who have moderate income, which means the greater of 115 percent of the AMI or area median income. The property you buy must also be located in an “eligible rural area” designated by the USDA. You can check your income eligibility here.
The USDA also makes loans that don’t typically require down payments. Section 502 loans, as they are called, cater to families whose income is 50 percent to 80 percent of the AMI. These direct loans are available in 33 or 38-year terms, with payment subsidies available.
Three Percent Down Payment Loans
Fannie Mae’s HomeReady loan program offers down payments as low as 3% and financing of up to 97%. Down payments and closing costs can be funded through cash-on-hand, grants, gifts, and subordinate mortgages known as Community Seconds.
Income eligibility is based on the relevant AMI where the property is located. Apart from targeting low-income families, HomeReady encourages people to buy homes in high minority, disaster-impacted, and low income areas. A HomeReady loan’s mortgage insurance is cancellable. HomeReady also allows borrowers with nontraditional credit to qualify for a loan.
Three and a Half Percent Down Payment Loans
FHA loans are known for their down payments that can go as low as 3.5%. Backed by the Federal Housing Administration, these purchase loans are designed for low to moderate income borrowers. FHA loans feature easy credit qualification (i.e. a FICO score of 580) to take advantage of lower down payments. First time home buyers frequently take advantage of FHA loans as well, due to low scores or not enough credit history.
You can use your savings or gifts from friends and family for your mortgage down payment. Closing costs may also be paid by the seller.
Shopping for Mortgage Rates
These loans, except for Section 502 direct loans, are provided by lenders that will have their own requirements alongside the guidelines made by the relevant government agencies. More importantly, lenders will vary when it comes to rates and fees.
To get value for your money and secure the loan that would be best for you, always shop for rates. You can talk to as many lenders as you and collect quotes as you go. If you are ready to apply for a home loan, click the orange button!
Justin McHood is America's Mortgage Commentator and has been providing expert mortgage analysis for over 10 years.
