April 16, 2015 by Leave a comment

If you don’t have a lot of cash in your savings account, you might think you can’t qualify for a mortgage. Between closing costs and down payments, getting a mortgage is expensive. And some first-time homebuyers think every mortgage lender requires a 20 percent down payment. However, many lenders require much less from buyers, which is good news if you have little savings. The truth is, there are several mortgage provisions for people in your situation. Here’s a look at four options for getting a mortgage with little savings.

  1. Low down payment mortgage loans

You don’t need a large downpayment for some conventional mortgage or FHA home loans. FHA home loans only require 3.5 percent down, and conventional mortgage lenders recently reduced their minimum down payment from five percent to three percent.

The downside is that you’ll have to pay mortgage insurance with both options. Mortgage insurance protects the bank in case of default and its required on every loan with less than a 20 percent down payment. Since annual premiums are added to your mortgage payment, mortgage insurance increases your monthly payment. FHA mortgage insurance is 0.85 percent of the loan balance, and private mortgage insurance with a conventional mortgage loan is 0.50 percent to one percent of the loan balance.

  1. USDA home loan

The U.S. Department of Agriculture encourages growth in rural parts of the country. So if you’re thinking about buying a home in a small town or a rural  area of your city, you might qualify for a no-money down USDA home loan which features low interest rates and flexible credit guidelines.

However, don’t think you have to move to the country or live far from civilization to qualify. Interestingly, many homes in populated areas are eligible for a USDA home loan. Provide your loan officer with the address of the property you’re thinking about purchasing and he can determine whether the address is eligible for USDA financing.

  1. VA home loan

If you’re active-duty military or a veteran, you might be eligible for a VA home loan. Like a USDA home loan, these loans do not require a down payment. There’s no private mortgage insurance and limitations on buyer’s closing costs, which also saves money.

  1. Increase your credit score

A high credit score says you’re responsible with money and you’re most likely to pay your mortgage on time. FHA home loans require 3.5 percent down regardless of your credit score, but some conventional lenders will require a higher down payment if your credit score is lower than 650 to 680. In this case, the down payment can range between 10 percent and 20 percent. You can increase your credit score by paying bills on time and paying off debt before applying for the loan.

You’ll face hurdles when buying a home, but don’t be discouraged if you have little savings. Know your mortgage option and think of ways to build your savings, such as liquidating personal belongings or borrowing cash from a retirement account — as long as you’re committed to repaying these accounts.

You also have to deal with closing costs. Getting multiple mortgage quotes is one way to lower closing costs. You can also wrap closing costs into your mortgage to avoid any out-of-pocket expense or you can negotiate seller paid closing costs.

Eric Khan is a Senior Mortgage Banker licensed in 23 states. Eric has been in the mortgage industry for over 10 years, and can be contacted by phone at 203-783-4593 or by email at [email protected] NMLS# 184348.


Filed Under: , , , ,
Tagged with: , , , , ,


Leave a Reply

Your email address will not be published. Required fields are marked *