Ideally when you go to purchase a home, you will have between 10 and 20 percent of the total cost of the loan to put as a down payment. However, with the costs of homes on the rise, even coming up with 10 percent can be difficult for some buyers. Rather than waiting years and spending money on rent, some people prefer to get a loan through programs that allow for low or no down payment. In some cases these loans might cost more because you will need private mortgage insurance (PMI) or will have a higher interest rate, but it might be worthwhile depending on your individual situation.
Qualifying veterans may be able to get a loan through the Veterans Administration (VA), which guarantees that you can purchase a mortgage with no down payment at all. These loans come from private lenders, but are backed (guaranteed) by the VA, so there is no mortgage insurance and you only pay a small funding fee. Fees vary depending on whether you served in regular military, Reserves, or National Guard, and how many previous VA loans you have obtained.
Navy Federal Loans
The nation’s largest credit union, Navy Federal, offers 100 percent home financing for the purchase of a primary home (not a vacation or second home). Since only members of the military, their families, and some civilian employees of the Department of Defense can be members of Navy Federal, these loans are restricted to that group.
The United States Department of Agriculture (USDA) has a rural development mortgage guarantee program, and is a popular one among many lenders and buyers. These loans are applicable to farmland, but can also be used to purchase homes in areas deemed eligible according to calculations like geography, household income, and whether you are a first-time homebuyer. The USDA levies an up-front fee of two percent rather than PMI.
Mortgage Insurance Loans
If you cannot qualify for one of the above programs, you might be able to get a conventional loan with low down payment and pay additional mortgage insurance. This insurance will be added to your monthly payments, and will be due as long as your loan is more than 80 percent of your total home value.
Finally, you can consider FHA loans if you have at least 3.5 percent of the home’s purchase price for a down payment. These loans are ideal for someone who has a poor credit history and may have a hard time qualifying for a loan otherwise. These loans do include an upfront premium of 1.75 percent, and an annual premium of 1.25 percent, which adds up to about $100 a month per $100,000 borrowed.
If you don’t have 10 to 20 percent to put down, talk to your lender today about other options to see if you qualify for a low or no down payment loan.