How to Buy a Home with Less than 20% Down

What are your options when you do not have a 20% down payment

If your goal is to take advantage of today's low home prices and low mortgage rates to buy a home but you are scrambling for a down payment, you can still buy a home with a low down payment loan. For military veterans and home buyers purchasing in certain rural areas, zero down payment loans are actually still available. Everyone else will need between 3% and 5% for a down payment.

Low Down Payment Programs: Veteran's Administration

Mortgages from the Veteran's Administration (VA loans) have always been available with no down payment (See: . http://www.homeloans.va.gov). The VA charges an up-front guarantee fee of 2.15% which can be financed as part of the transaction. Unlike the FHA program, VA loans do not have monthly mortgage insurance premiums after the guarantee fee is paid.

Low Down Payment Programs: U.S. Department of Agriculture

The U.S. Department of Agriculture (USDA) also offers a zero down payment mortgage program designed to make loans available in rural areas. The good part about this program is that the definition of "rural" has expanded significantly under this program over the past several years so that many areas that might not be so rural these days are actually included in the program. While few if any major metropolitan areas will qualify for this program, many suburban areas that were at one time considered rural actually do qualify. To check by address or by map, use the USDA's eligibility mapping tool

A better alternative today for low down payment borrowers might be the FHA mortgage program. Home buyers need a 3.5% down payment for the FHA program, but unlike Fannie Mae/Freddie Mac programs all of this 3.5% down payment can be a gift. In addition, home buyers can finance up to 6% of the sales price to cover closing costs and the FHA up-front mortgage premium is added to the loan amount instead of having to be paid at closing. While the up-front guarantee fee is relatively high, the monthly mortgage insurance premiums under FHA are often half of private mortgage insurance premiums charged for Fannie Mae and Freddie Mac loans.

Low Down Payment Warning

One caution: just because you can put down a zero or low down payment does not mean that you should jump into home ownership at the first chance you have unless you are truly prepared for home ownership. Once you become a home owner, there are expenses of beyond your mortgage payment and you should be prepared for the true costs of home ownership. Only after you understand all of the costs involved should you take the step be becoming a home owner.

The simple answer is that you will be able to buy a home at a lower price in better condition than if you purchased a foreclosure. Sellers are getting out of their situation thanks to the lender, so they have an incentive to keep the property in good condition so you will buy it. Just as important, sellers are not getting anything out of the transaction so they do not care what the selling price is as long as the bank lets them out of their debt.

By working closely with your Realtor and the seller, you can buy a home for below today's low market values in better shape than any foreclosure you will find.

For exact mortgage rate quote, help planning your short sale and a free purchase mortgage pre-approval, please email us or call us at 1-877-868-2503.

To see the current mortgage rates, visit our Current Mortgage Rates page.

For a free mortgage pre-approval and an exact rate quote to help you purchase your next home, please email us or call us at 1-877-868-2503.

Our visitors also found the following articles relevent to this topic:

• Mortgage Refinancing FAQs
• Refinance Mortgage Loan
• Four Common Types of Refinance Mortgages