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Low down payment mortgage loans have been around much longer than most people realize. The Federal Housing Administration  loan requiring just 3.5% down reemerged in 2008, but today, loans backed by the government requiring even less down are becoming popular. Here are the different kinds of low-down-payment loans available and what you should know about each.
These are loans insured by the Federal Housing Administration that require just a 3.5% down payment and are incredibly flexible on financial history, credit history, and debt-to-income ratios. It is the most widely known low down payment program available in the market, is incredibly popular, and is virtually limitless in terms of the property type, income and location. Learn more about FHA loans here.
Some conventional loans require just 5% down, and in some cases as little as 3% down based on the per-capita-income in the area in which the property is located.
This loan requires no down payment whatsoever and has income limitations and specific area locations. The program is only available in certain areas that are deemed agricultural by the U.S. department of agriculture.
The U.S. Department of Veterans Affairs guarantees loans for up to 100% loan-to-value with absolutely no money down. This is hands down the best program in the low down payment arena. The program is available to U.S. military veterans and their spouses only.
Some state-specific programs allow homebuyers to put as little as $500 down to purchase a home. For example, in the state of California, a grant is provided for up to 5% of the loan amount, which can go toward the down payment and closing costs.
Some lenders are starting to offer mortgages for as little as 1% and, in some cases, even no money down with grants that need not be repaid. These loans are backed by Fannie Mae, and the lender bears the risk. You can bank on income limitations and needing good credit scores for such programs.
Keep in mind that the better the loan program you have, and the more down payment you have, the better your chances of getting into contract. Plus, most of the low down payment loan programs available in the marketplace today, except for FHA and a traditional 5% down conventional loan, have income limitations. Income limitations mean your borrowing power in a certain geographic area is limited. Whereas, if you could use a 3.5%-down FHA loan or a 5%-down conventional, for example, your odds of getting into contract would be far greater because your borrowing power would be kicked up a couple of notches.
Do not accept a lender giving you a just a pre-qualification letter. You want to be pre-approved. Any lender that will not give you a pre-approval letter is a lender that is more concerned about their policies than they are getting you into a home.
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December 13, 2023
Mortgages
June 7, 2021
Mortgages