About six years ago, the answer would have been, “Nothing. What are you, a sucker?”
Today, with millions of foreclosures all over the United States, lending standards are tighter. But you can still get a mortgage with very little down if you know where to look.
0% Down Mortgages
How do you get a lender to give you a mortgage with no money down? You tell him that the United States government will pay off the loan if you can’t or won’t.
USDA Rural Development
If you are a low or modest income home buyer who wants to live in a rural area, you should check out USDA Rural Development.
USDA offers direct mortgages with subsidized interest rates to low-income borrowers—rates as low as 1%. But even if your income isn’t rock bottom, you may qualify for a 0% down mortgage guaranteed by the federal government.
These mortgages are finicky. You’ll need to complete lots of paperwork and the program has limitations on the kind of property you can buy. But you’re getting a loan with 0% down that is more flexible on credit. You decide if it’s worth it.
Veterans Administration
If you were discharged honorably from the U.S. military after active duty, you may qualify for a 0% down mortgage guaranteed by the Department of Veterans Affairs.
In exchange for getting a mortgage without putting any money down, you’ll pay a guarantee fee. It will be included with your closing costs and financed in your mortgage.
Guaranteed loans are not cheap when you figure in the fees. But if you want to buy a home quickly and feel confident you’ll be in your house for a long time, you might find one a good fit.
Less than 5% Down Mortgages
Once again, if you’re looking for the lowest down payment, you’ll look for government financing.
State Housing Finance Agencies
Each state has a housing finance agency that promotes homeownership and provides funding.
In New York state, the mortgage program funded by our state housing finance agency is the State of New York Mortgage Agency (SONYMA). It offers down payments as low as 3% with forgivable loans for down payment.
You’ll find similar programs if you check out your state’s housing finance agency.
Federal Housing Administration
Around since 1934, the Federal Housing Administration (FHA) helps people buy homes with as little as 3.5% down. It’s one of the most popular mortgages available and will become increasingly important as conventional lenders continue to tighten up their standards.
Although FHA loans used to be available to nearly everyone they have also tightened their standards. If your credit score is less than 620, you may still qualify for a mortgage. But you’ll pay much higher mortgage insurance fees.
Less than 20% Down Mortgages
If you have good credit, some savings, and steady work you can qualify for a conventional loan. Just like with the other loans I’ve mentioned, if you put down less than 20% you will pay mortgage insurance until you have at least 20% equity in your house.
But, if you live in an area where standard houses cost $450,000, saving $90,000 to avoid paying mortgage insurance might take a long time.
20% or More Down Payment Mortgages
Whether you save the full 20% down payment yourself, get a family gift, or get money from a first time home buyer’s program, you’re getting the best deal when you put more down.
You risk less if house values decline. And you’re not paying money to a mortgage insurance company month after month just to make your lender happy.
What’s the Right Down Payment for You?
Listen, just because you can buy a house with no money down doesn’t mean you should. Low money down mortgages make more sense for some borrowers than for others.
But if you’re confident you’ll be in your house for a while and your job is stable, buying a house with less than 20% down might be the right fit for you.
A Personal Message
Today is the one year anniversary of Hands on Home Buyer. Check out my first post to see my goals for the site and to judge if I’ve met them.
It’s been a fun and exhausting year. Hands on Home Buyer has been a labor of love. I don’t get paid to write. I get up every morning at 5 a.m. to post before going to work. The time and effort are only worth it if I’m providing useful information.
I hope you’ll check in to let me know what you think and what you’d like to see in the future. You can leave a comment below or use the contact page at the top of the blog. And I’m always anxious to see what topics you’d like me to cover.
Finally, I won’t be posting on either of my blogs tomorrow. I’m joining the Internet strike to protest bills coming up for a vote in the Congress in two weeks. These bills (PIPA/SOPA) will give unprecedented power to private companies in the name of stopping internet piracy.
I support the rights of artists to protect their work and to be paid fairly for what they do. But I don’t support private corporations gaining any more power over how the internet is structured–particularly since the internet only exists because of the massive investment of public money.
You can learn more about the issues and how to make your voice heard at Stop American Censorship.
And I’ll be back Thursday with a post on a topic requested by a reader. See you then.
i love this blog! my husband and i are looking into buying our first home, and this site has been so helpful in preparing me for what we get to look forward to. reading some of these posts has been overwhelming at times, but i keep reminding myself it’s good to know exactly what we’re getting ourselves into. my goal is to read all your posts! and we start a home buyer education class next week. wahoo!