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You Don’t Need 20% Down to Buy a Home

Some people think they can’t buy a home unless they put down at least 20%.  This is not true! There are many programs out there that don’t require 20% and some require as little as 3.5%. This makes it much easier for more Americans to fulfill their dream of becoming a home owner.  The truth is most homes are not being purchased with 20% down.









Types of Low or No Down Payment Options:

FHA Loans

This is the most popular loan being used today. These are government backed loans which require as little at 3.5% down. All home buyers are the prime candidates for these loans with the low down payment requirements. FHA is also more forgiving with past credit history and will not penalize you as harshly for lower credit scores.

VA Loans

These are also government backed loans, but require NO DOWN PAYMENT. To be eligible for these loans you have to have served in the U.S. Armed Services and in certain cases the spouses of deceased veterans as well. The requirements of these loans do vary due to the type of discharge from the service (honorable or dishonorable) as well as the number of years served. VA Loans have no monthly PMI whatsoever, and have similar underwriting criteria as FHA.

MassHousing Loans

According to Fannie Mae, over 50,000 consumers have used this loan program in Massachusetts to fund the purchase of their first home. This program offers very low down payment options, with low interest rates for the life of the loan. There are income restrictions involved with this loan, but offers a great option for low-middle income families to become home owners. Mass Housing offers even further discounted rates for first time home buyers who make less than the 80% of the median of the town or county in which they are buying. MassHousing also offers a no PMI option. Get information on New Hampshire Housing Loans.

USDA Loans

This loan is funded by the United States Department of Agriculture and also offers a low interest, low down payment for low to middle income families. There are geographic requirements for the property itself, and a lender can definitely help you figure out if your dream home qualifies for this program. The USDA program is commonly used in towns with a population of 25,000 or less. Visit the USDA Loan Eligibility Website for more information.

Areas in Massachusetts Eligible for USDA Loans (shaded areas are ineligible) click to enlarge

Areas in Massachusetts Eligible for USDA Loans

 

 

 

 

 

 

 

(go to USDA.gov for more information) 

Fannie Mae/Freddie Mac

Both of these enterprises guarantee a conventional loan program with 5% down with NO PMI options. They are a little stricter on their requirements of FICO scores and income, but for a consumer with great credit these are fantastic options for you.

203K and Streamline K Loans

These are also FHA /Government backed loans and have the 3.5 % down payment requirement.  These loans are great for those buyers that find a home with potential and do not have the cash flow of their own to put into the improvements. The loan allows for the homeowner to lump the amount of funds for the rehab into the actual loan itself. The requirements for this loan is for the home owner to pull together estimates from contractors to perform the work, however there are stipulations on these contractors:

  • The contractor has to be licensed
  • CANNOT be a blood relative
  • In the Full 203K there has to be a General Contractor on the job

Other regulations on these loans are the work has to start within 30 days of closing on the loan and the work needs to be completed within 6 months of closing.

Jumbo Loans

A jumbo loan is used to purchase a home priced above $417,000. Some banks will allow 10% down with no PMI for jumbo loans, though the interest rates can be higher than for other types of loans.

As you can see there are so many options available to you that do not require the traditional 20% down.  In fact, with most of these programs your down payment can be a gift from family, or allows for it to be borrowed from your retirement accounts, such as a 401k.  That being said we would like to stress that if you are in a fortunate enough position where you have 20% to put down on your home purchase this is definitely still a great way to go in setting yourself up with plenty of equity in your investment. All of the recent hype in media lately has led so many consumers to believe if they didn’t have 20% to put down then they couldn’t qualify for a mortgage and that is simply not true.

Another tool for your reference can be found below. Use this table as a resource for getting a ball park idea of what your payments would be like and to show you how affordable owning your own home can be!

 

PAYMENT TABLE: MONTHLY PAYMENT FOR EACH $1,000 BORROWED

amortization