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Buying a House with a Small Down Payment? It CAN Be Done!

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Buying a House with a Small Down Payment? It CAN Be Done!

With the mortgage industry collapse, lending has tightened up to level we haven’t seen since the 1980′s. Gone are the proliferation of no money down mortgages, and for good reason, but that does not mean that the average buyer cannot buy a property with little or no money down. Here’s how:FHA
This is an old standby. FHA loans require the buyer to only put 3% down. Compared to the average conforming loan down payment requirement of 20%, this is an easy choice. Do remember that FHA housing inspections can be tight, so make sure the property is in good shape. For those properties that need work, consider a 203K FHA loan, which allows additional money financed to make repairs. One thing to remember regarding FHA loans is that they carry the added expense of mortgage insurance.Fannie Mae HomePath & Freddie Mac HomeSteps Programs
These government sponsored programs offer a 5% downpayment option, as well as requiring no mortgage insurance. Another important note is that neither require a lender appraisal on the property, which, in effect, makes it possible skirt the tight appraisal requirements of traditional mortgage programs. This can be a blessing or a curse, because it makes it easy to over pay for a property and put yourself in a negative equity situation should the market not improve. These programs are only available on real estate owned by Fannie Mae and Freddie Mac.


Alternative Financing
This is where thinking outside the box can produce unexpected benefits. There is nothing new about owner financing, and many sellers who are having trouble selling to traditional buyers are turning to Rent To Own or Contract For Deed Sales. In a Rent To Own scenario, the buyer agrees to put down a small amount of money, and then rents the property for an agreed upon time. During that time, an agreed upon portion of the rent payment is applied to their downpayment. At the end of the term, the renter must obtain a traditional mortgage. In a Contract For Deed, which is also known as a Land Contract, The buyer buys the property today at a set price, but does not close the deal until a point in the future, say two years. The contract is recorded to title, giving the buyer property rights. The payments made are then considered mortgage payments to the seller. At the end of the two year term, the buyer can use these mortgage payments as the mortgage history required by lenders, and can then refinance the sellers name off the title at this point, usually with an FHA refinance. The biggest difference between these two programs is that the buyer rents the property during a Rent To Own contract, while being considered a buyer when using a Land Contract. Since these programs are unorthodox and can be complex, always seek the counsel of a qualified real estate attorney.

Joseph Alfe is a nationally recognized short sale expert, short sale negotiator, and consultant. You may contact Joseph at:

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Andrew Payne Realtor® Richmond VA Homes For Sale~804-938-5257~
Piedmont Real Estate - Richmond, VA
Richmond, VA, Real Estate, SRES®, NAR Green


Thanks for this post.  It looks very helpful.  I've also heard of 100% loan financing and need to investigate that further with our local affiliated loan officer.

Dec 19, 2013 01:07 AM