The typical down payment for a home is around 20 percent. Fortunately, if you need a mortgage loan that permits a much lower down payment, there are multiple resources that you may be able to use. Here are some of the best options for obtaining a low down payment mortgage loan.
If you have served in the U.S. military, you may qualify for a VA loan that will provide you with 100 percent financing, which means you would pay zero down payment. Your eligibility for a VA loan depends upon your status with the military and various other considerations.
It is easier to qualify for an FHA loan than other loans that allow a low down payment. The Federal Housing Administration backs the loan, which frees lenders to accept more risk on the loan. FHA loans allow down payments as low as 3.5 percent.
The HomeReady mortgage is backed by Fannie Mae, and requires only 3 percent down to obtain the mortgage loan. This mortgage program is designed to assist lower and middle income buyers. Credit requirements are tougher than for an FHA loan. However, income totals to qualify for a HomeReady mortgage include all occupants of the household, even your parents' and children' incomes.
Fannie Mae offers a low down payment mortgage option called the Conventional 97. This program is set up to assist buyers with limited finances who meet the credit requirements and otherwise qualify for a mortgage loan, but who can only pay a 3 percent down payment.
There are programs to help potential home buyers earn their down payments through working to help build their own home or homes for other buyers. Check with your local nonprofits or local housing development organizations, for information on sweat equity down payment programs.
The USDA helps home buyers with zero down payment mortgage loans. If you are buying a home in an eligible rural area, and you meet the credit and income requirements, you may be able to obtain 100 percent financing for your home purchase.
This mortgage type allows the borrow to make a 10 percent down payment. It's a little more complex than more typical options. You will obtain a regular mortgage loan, possibly underwritten by Freddie Mac or Fannie Mae, for 80 percent of the purchase price. Obtaining this conventional mortgage loan opens up access to current mortgage rates for you. Then, you obtain a second loan—perhaps a home equity line of credit—for 10 percent. That leaves you paying just 10 percent of the home purchase price in cash.
Keep in mind that you are paying a larger down payment meaning you're borrowing less. You may also obtain a lower interest rate for a mortgage by paying a higher down payment. So, the more you pay as a down payment to buy your home, the less you will pay for your home. Over the long term of a mortgage loan, this can add up to an enormous difference in the total cost of your home. So, be sure to consider this fact when you weigh the decision to move forward with a low down payment mortgage.
For more information about obtaining a mortgage loan with the lowest possible down payment, or to apply for a mortgage, contact Midland Mortgage, Columbia SC, to speak to a helpful home mortgage expert. We help our customers with the most practical home mortgages options in South Carolina.