Real estate agents and even lenders are a little leery of the zero down payment options after the subprime mortgage bust in 2007, but not all stay away from these types of loans either. There are a lot of options for borrowers in today’s market that have safeguards in place for defaults and protection for homebuyers so that they don’t lose their homes and banks are left with real estate on their books.
If you are struggling to pull together a down payment, understand that you have a lot of options. The USDA loan is a zero down home loan designed specifically for those with low to average credit scores or low-income borrowers. It is a completely zero down home loan and offers lower fees than an FHA loan. It also has a lower mortgage insurance premium than an FHA as well. The downside is that you are limited to specific areas in which to buy. Because this is backed by the US Department of Agriculture, only homes in certain rural areas qualify. This is not for buying a condo in the middle of the city. If you plan on buying a home in outlying suburban areas, the USDA loan might be ideal. Not only does it not require a down payment but the credit guidelines are very flexible as well. This loan is ideal for first-time buyers as well as repeat buyers for you just can’t pull together a large down payment.
VA loan is also a good option but of course, because this is backed by the US Department of Veterans Affairs, you need to either be active military personnel or a veteran to qualify. However, those that have served as little as 90 days can still qualify and in most cases, the seller pays closing costs.
For low down payments, and FHA is usually the best option. This requires a 3.5% down payment and the mortgage guidelines have a somewhat liberal approach to credit scores and down payments. FHA will usually ensure a home loan for borrowers with low credit scores as long as there’s a reasonable explanation. Other benefits include credit scores as low as 500 and mortgage insurance premiums built into the cost of the loan. FHA is also a good option for those that have experienced a short sale, bankruptcies or even a foreclosure.
The HomeReady Mortgage program is a 3% down payment backed by Fannie Mae. It offers below market mortgage rates, reduced mortgage insurance costs and innovative underwriting. It also takes the income of everyone living in the home rather than just one income. This is ideal for those that have several family members living under one roof.
Other options depending on where you live, may include the Freddie Mac Home Possible Advantage, which is a 3% down or a conventional loan 97, also offering just 3% down. These may or may not work to your advantage and there are limitations and eligibility requirements for both. Of course, if you can, the general conventional loan requires at least 10% down, but again, we are creeping up there with the down payment requirements.
There are a lot of options for homebuyers today. But, one thing is for sure, interest rates are rising. If you’re looking to get in on a great home loan, the sooner the better. Call us today to get in touch with a lender that can work with your credit limitations, income and eligibility requirements.