Guidelines have become stricter for buying a house. But there is some pleasantly surprising news if you think the only way you can buy a house is with excellent credit and a 20% down payment.
According to bankrate.com, veterans and active-duty military can borrow with as little as no money down and rolling a funding fee into loans guaranteed through the Veterans Administration. The funding fee varies according to whether or not you’re a veteran, served in the National Guard or in regular military.
These loans are usually restricted to members of the military and family members. Similarly, the Navy Federal Credit Union offers 100% financing to those who qualify with Naval Federal eligibility.
The USDA Rural Development mortgage guarantee program also offers no-down-payment loans. These loans are not just for farmland, but can be granted for areas with small populations even small populated areas close to metro areas.
Those are great programs – if you qualify. But most lenders will require you to have some sort of down payment. A down payment is your way of showing that you are willing to risk your own money to buy a house.
The larger down payment – along with good credit of course - , the more willing the bank is to lend you money with a decent percentage rate. You can still get a loan with a smaller down payment, but you will need a higher credit score, will have a higher interest rate and will have to pay private mortgage insurance (PMI).
An advantage to PMI is that is can be cancelled once you have equity in your home that equals 20% of the original mortgage. This is usually done through monthly payments or home price appreciation. Note that PMI is not automatically cancelled, you’ll have to apply for the cancelation once you get to that point.
It should be said that FHA-guaranteed loans typically require 3 – 6% for a down payment with mandatory PMI. Also, the only way to cancel PMI on a FHA loan is through refinancing to a conventional loan.
If you have less than perfect credit and want to buy a home, there are options for you as well. Credit scores still play an important part in your qualification, but if you come to the table with 20% down, you can get a pretty decent loan even with a score of 620 or even 580.
It’s also important where the down payment comes from. Typically first time buyers get help from their family to buy a house. So check with your lender because there may be limits to the size of down payment gifting.
You can also get down payment assistance from grants. Unfortunately, the FHA no longer allows for seller-assisted down payments. But The FHA does have a link to organizations that can possibly help with the down payment. It is also a good idea to check the housing authority in your own area for grants and down payment assistance programs.