Buying a home is often the biggest investment many families make. In today's market it can be challenging to save the money you need to close on a home—not to mention the down payment that is also necessary. However, given changing market trends and the variety of financing options available, the traditional 20 percent down payment that used to be required is no longer the hurdle to home ownership that it used to be.
Special loans can reduce your required down payment. If you're looking to buy a home and don't think you can manage a 20 percent down payment on the home you want in a desired neighborhood, a special loan programs like the ones below may be worth looking into:
- FHA Loans. FHA mortgage loans are insured, but not originated, by the federal government's Federal Housing Administration. Known as 203b mortgage loans, they require just 3.5% down. They can be used on one- to four-family homes and typically carry lower interest rates than conventional mortgage loans and you can often qualify with a lower credit score.
- VA Loans. If you or your spouse is a current or former member of the military, your family may qualify for a VA home loan backed by the Department of Veterans Affairs. These loans require no money down and if interest rates drop in the future you can look into complementary programs which can reduce your mortgage rates significantly, too.
- USDA Loans. If you're buying a home in a rural or outer suburban area, you may qualify for a USDA loan, another type of federally insured loan Unlike FHA and VA loans, USDA loans are direct loans – they're made by USDA itself.
- Conventional 97 Loans. Conventional 97 loans are regular mortgage loans that let you put as little as 3 percent down on your home purchase. These loans are backed by Fannie Mae and come with a variety of terms.
Do your homework on new home financing. With all of the financing options available for home buyers, it's important to understand all of the details of nay mortgage agreement that you enter. This is especially true if you are using one of the special loan types above. A key point: many of them require a private mortgage insurance (PMI) premium until your loan-to-value ratio reaches a specific threshold, so if this applies to you, you need to factor PMI premium payments into your home-buying costs as well.
Clear the downpayment hurdle and get into your new home! As a general rule, the larger your down payment is, the stronger your purchase offer will be, but just because you don't have a 20 percent (or even a 10 percent) down payment won't exclude you from the housing market altogether. In fact, the tips above from moneycrashers.com can help you save the down payment for your new home and even find some unexpected sources of financing which may make sense for you.
Have questions about purchasing a new home in the southeast Michigan area? Contact our group of experts today!