No to Low Down Payment Options
In this series, we are providing tips to avoid the Most Common Roadblocks to Home Ownership. So far in previous weeks, we have discussed how to solve 1) limited or bad credit, 2) no down payment, 3) not having a budget, 4) documenting rent history, 5) not understanding a Buyer’s Agent role. Today, we are discussing Roadblock # 6: Understanding the no to low down payment options.
Many say, “I have heard of FHA, but that is about it for mortgage loan knowledge”. A lot of buyers misunderstand mortgage requirements. Often buyers believe the options require perfect credit, 20% down, or an FHA loan. But there are SO many other great mortgage loan options for today’s homebuyers.
Low Down Payment Options Available for Buyers
- VA home loans are for active duty, Veterans, or qualifying surviving spouse of a veteran. This is a no money down financing option plus the seller can pay all closing costs and even pay off a buyer’s debt to help qualify. Learn more about VA loan tips here
- USDA Rural Development for low to moderate income families is a great no money down mortgage option. There are a lot of misconceptions about USDA loans. A common one is that buyers must have very low income, yet households can make near $100,000 or more per year. The amount of income qualifications depends on the family size and the county. Secondly, many believe the loan is for purchasing low priced homes only. Actually, USDA will allow up to a price of $417,000! Third misunderstanding is that USDA loans are for buying farms, yet USDA guaranteed loans actually don’t allow income producing farming type properties. Lastly, a lot of buyers believe that they are hard to qualify for, but borrowers may have a 620 credit score. Sellers may pay up to 6% of the sales price in closing costs for the buyer. This feature often allows a USDA buyer to bring no money at all to closing or even get back their earnest money. Learn more about USDA loan tips & details here
- NC & SC Housing Finance Agency Home Advantage Program, with or without Down Payment Assistance, can combine with other loan types to create no to low down payment options. These loans have a minimum credit score requirement of 640 plus there is a maximum income limit for any borrowers on the loan of $85,000. Notice that this says “borrower” income rather than “household” like USDA. This feature may help buyers that exceed the household income limits. Additionally, there is no geographic restrictions like USDA other than the property must be in North Carolina or South Carolina. The Down Payment Assistance is a 0%, no payment required, forgivable loan. The down payment assistance may be used towards down payment, closing costs, or both. This type of loan is especially popular for buyers looking for no to low down payment options in larger NC and SC cities that are not USDA approved. Learn more about Down Payment Assistance here
- FHA allows for a down payment as low as 3.5% of the sales price, allows for 6% of the price in seller paid costs for the buyer, and the down payment can be a gift from an allowable source like family. FHA is more forgiving on credit scores and medical collections so for this reason, it is a very popular type of mortgage loan. There are no income or geographic limitations, but there are loan size limits depending on the county of the property. Check your county FHA loan size limits on these links. NC county limits here , SC county limits) Learn more about FHA details and loan tips here
- Construction to Perm VA & FHA one-time closing loans allow a buyer to build a new home with low out of pocket money. A benefit of a construction loan is that there is only one qualification which is prior to closing. This means that a credit re-pull, asset verification, or employment verification is not needed once the loan closes. Our construction perm loan has a minimum credit score requirement of 660. Many are frightened by the closing costs on a construction loan as they are higher than traditional loans. Actually when a builder funds the construction, these costs are built into the price. So with a construction loan, the builder is able to offer a lower price as the costs will be in the construction loan. So whether you already own land or want to buy land, this is a great way to build your dream home. Learn more about Construction Perm loans here
- FHA 203k Purchase Rehab loans allow buyers to purchase a home that requires some TLC. The home is in the right neighborhood, school district, and has the overall layout desired. BUT, the home needs work! Well, a rehab loan allows buyers to complete an HGTV remodel and a purchase at once. Typical remodels include renovations of bathrooms, kitchens, HVAC, and many more options. Learn more about FHA 203k purchase rehab loans here
- Conventional Fannie Mae or Freddie Mac loans are even great low down payment options for first time buyers. Conventional loans offer down payments as low as 3%. Buyers with higher credit scores find several PMI benefits for conventional compared to FHA. Plus conventional loan PMI may cancel after a few years. FHA PMI often continues for the life of the loan. These products even allow for gift funds to be used for down payment. Finally, the seller may also pay the buyers closing costs. Seller paid limits for conventional loans are explained below.
- Less than 10% down = 3% of the price
- 10% – 24.99% down = 6% of the price
- 25% or more down = 9% of the price
We encourage you to talk to our mortgage experts early to discuss which mortgage product matches your goals the best. We hope that you learned valuable low down payment options that will save you money. Plus these tips can help you purchase the home of your dreams. Following these tips and steps up-front will make a purchase go much easier.