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Easing Your Way Into
Homeownership:
A Guide To Low Down Payment Mortgage
Programs
by: W. Troy Swezey
There’s no question about it: Buying a first home
is a big financial commitment. In most cases, a home is
the largest single purchase an individual or family will
make in a lifetime. However, because of the tax
advantages afforded to homeowners, buying a home also
can be one of the best financial decisions you’ll ever
make.
Problem is, many would-be homeowners remain renters
simply because they mistakenly believe mortgage lenders
require that buyers come up with 20 percent of the
purchase price as a down payment. While it’s true
lenders feel it’s less risky to work with buyers who
are able to bring a substantial down payment to the
table, the standard 20 percent requirement is fast
becoming a relic of the past. In recent years, lenders
have become more flexible in working with first-time
homebuyers by creating a variety of special programs
that require only a small down payment. These programs,
combined with the most favorable interest rates in two
decades, have encouraged growing numbers of renters to
consider the tremendous benefits of home ownership.
While the list of programs offered by individual
lenders is too extensive to mention in detail, here are
some common programs you are likely to come across as
you work with your real estate agent to purchase your
first home:
Federal Housing Administration (FHA): FHS mortgages
allow homebuyers to purchase a home with as little as a
5 percent down payment, and to finance all non-recurring
closing costs. The current maximum loan amount in most
urban markets is $151,725. In addition, borrowers are
allowed to use up to 41 percent of their gross income
toward paying mortgage debt – well above the ratio
allowed under most private programs.
Department of Veterans Affairs (VA): VA mortgages
allow veteran or active service personnel purchase home
with no down payment, up to the current maximum price of
$184.000. However, there is no purchase price limitation
for buyers able to make a down payment. Like the FHA
program, VA borrowers can put up to 41 percent of gross
income toward their mortgage debt.
Mortgage Revenue Bonds and Mortgage Credit
Certificates: Mortgages funded with these instruments
typically require a minimum of 5 percent down and have
interest rates that are 1.5 to 2 percentage points below
conventional 30-year fixed rates. These types of loans,
offered by state and local housing agencies, are
available only to first-time homebuyers. There generally
are income and purchase price caps that vary, depending
on where you plan to buy.
Private Mortgage Insurance: Most major lenders offer
privately insured mortgages, which generally require a
10 percent down payment (although some lenders offer
loans with a 5 percent down payment to buyers with
exceptional credit). These loans typically are not
limited by maximum loan amount or purchase price
limitation.
Community Homebuyer Program: Through their networks
of mortgage lenders, the Federal National Mortgage
Association (Fannie Mae) and the Federal Home Loan
Mortgage Corporation (Freddie Mac) offer Community
Homebuyer Program loans. These programs require a 5
percent down payment, 3 percent of which may be a gift.
To further help buyers qualify, applicants may use 38
percent of their gross income. Currently, the maximum
loan amount available through these programs is
$203,150.
Clearly, there are a lot of options for first-time
homebuyers. While lenders will be more than happy to
share information about their own programs, you can save
yourself a good deal of time by first selecting a
professional real estate agent who is experienced in
working with first-time buyers in the areas where you
plan to buy.
An agent who focuses on first-time buyers will know
from experience which lenders in your area offer a low
down payment program that will meet your unique needs.
Today, taking the first step toward owning your own
home is easier than before. Your real estate agent is
your best resource for finding innovative ways to help
you come up with a down payment and qualify for
financing. There’s certainly no need to wait until
you’ve saved a 20 percent down payment!
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