Can I Get A Mortgage With Less Than 20% Down?

April 2, 2016

If there's one question I get a lot, it's this one: "Can I get a mortgage with less that 20% down?"

 

Needing 20% down is a common misconception in the marketplace today. There are numerous options for obtaining financing with less than 20% down. Below I will lay out several options for either no down payment or low down payment.

 

NO DOWN PAYMENT OPTIONS:

 

USDA/Rural Development - The Guaranteed USDA program offers 100% financing for qualified borrowers. There are many locations outside of major metropolitan areas that are eligible for this program. Click here to see if the area you're looking is eligible. Also, USDA has household income restrictions for their program. They calculate the total household income, regardless of who is on the loan application. This income limit is based on the number of people live in the household, and varies based on the area you live in. Click here to check income eligibility.

 

USDA also offers a Direct program that is geared for lower income households. This program offers subsidized payments and slightly longer loan terms. Here is more information on the USDA Direct program.

 

VA Financing - This loan also offers 100% financing and one of the biggest eligibility requirements is that you either need to be an active or discharged member of the armed forces or national guard. Click here to find out if you may be eligible. Here is a link to some frequently asked questions as well. VA loans do have a guideline for disposable income (the money left over after all debt payments are made), however do not have a household income limit.

 

LOW DOWN PAYMENT OPTIONS:

 

FHA Financing - FHA offers home loans with as little as 3.5% down. FHA has no income limits for the household, but does have loan limits, based on the county in which you are purchasing the home. Click here to check on the limits for your area. FHA also offers a program for purchasing FHA foreclosure properties for as little as $100 for qualified properties. FHA is also one of the most lenient programs in regards to credit history, in my opinion. *Note* This 3.5% down payment can be received as a gift from an eligible source.

 

Local and State Bond Money Programs - Many states and even some larges cities have down payment assistance programs that can be used with a variety of loan programs. For example, in my state of Alabama, we have a program through Alabama Housing Finance Authority (AHFA) called the Step Up Program. This program allows an eligible borrower to receive down payment assistance from AHFA in the amount of 3% of the purchase price and apply that towards FHA's 3.5% down payment requirement. This amount financed as a 2nd Mortgage for 10 years at the same competitive rate as the first mortgage. This allows a borrower to get FHA financing with only 0.5% of actual cash investment. Some other local city and state programs offer down payment assistance with no payback if you remain in the home for a certain number of years. Check with your local lenders, housing authorities and local governments to see if these programs exist in your area.

 

Conventional Financing - Fannie Mae and Freddie Mac both still offer programs with as little as 3% down. For example, FannieMae introduced a relatively new program called HomeReady® that not only offers 3% down, but has other flexibilities with non-occupant borrowers, sources of downpayment, and compensating factors for higher debt-to-income limits.  FannieMae offers HomePath financing on eligible FannieMae foreclosures. Also, they offer HomePath Renovation loans for foreclosures that need a little TLC.

 

For other homes, FannieMae allows as little as a 5% down payment. However, when putting less than 20% down, private mortgage insurance (PMI) is required on the loan. PMI is offered by separate companies and they have their own individual requirements based on FICO score, amount of down payment, type of loan, etc. PMI can be paid monthly or it can be paid all at once up front by either the buyer, the seller, or the lender. Ask your lender for details on these programs.

 

I hope this has answered your general questions about the programs that are available right now. I'd be happy to help you with any further questions you may have.

 

Give me and my team a call if we can answer any questions regarding loan programs you may be eligible for.  You can reach us at 256-734-6012.  You can also Apply Online by going to www.ApplyWithBrandon.com.