Monday, 20 May 2019
Prospective homebuyers with little or no cash may assume they need to wait years to save enough for a down payment.
While conventional mortgages often require a down payment of 20% of a home's price, numerous alternatives can make homeownership dreams a reality for those without tens of thousands of dollars — or more — in the bank.
Mortgages with low or zero down payment requirements provide a particularly appealing option. Other help is available as well.
A variety of specialized home loans demand little or no down payment for first-time buyers and others lacking a large cash reserve. The federal government guarantees several of these mortgages and sets requirements on qualifying for them, but borrowers generally apply through banks or other lenders.
Depending on which type of loan you pursue, you'll need to meet certain eligibility requirements covering income (minimums or maximums may apply), credit score, assets and, in some cases, property location. Loans that allow borrowers to secure a mortgage with low or no down payment often also provide more flexible terms than conventional loans when it comes to credit scores.
Here's a rundown of several loan programs that might help you make this milestone purchase.
FHA loans are mortgages that are insured by the Federal Housing Administration. The down payment required may be as low as 3.5% of the purchase price. These loans, popular with first-time home buyers, usually offer easier credit terms than other mortgages — generally a 580 minimum credit score — and lower closing costs as well. This makes them an appealing option for consumers with limited cash and less-than-stellar credit.
Median home sale prices in a buyer's geographic location help determine maximum FHA loan amounts. The federal government offers an online tool to help home buyers find the loan limit in their area. While FHA loans are available to consumers with a wide range of incomes, borrowers need to show steady employment and meet certain debt-to-income requirements.
Your lender may help with closing costs under certain conditions, and you may be able to roll some of these expenses into the loan itself. With an FHA loan, as with many mortgages, the borrower must pay monthly mortgage insurance premiums.
VA home loans are available to U.S. armed services members, veterans and surviving spouses. These mortgages are guaranteed by the U.S. Department of Veterans Affairs and usually require no down payment at all.
Your bank may help with closing costs if you buy a property in a low-to-moderate income neighborhood or meet certain income requirements. While VA loans don't require mortgage insurance, borrowers do have to pay a funding fee at closing, either in cash or by folding it into the mortgage.
BBVA offers up to $3,500 in closing-cost assistance for low and moderate-income home buyers who qualify for an FHA loan and up to $2,500 for those who qualify for a VA loan, depending on mortgage size.
USDA loans are government-guaranteed loans that are available to low and medium income rural home buyers. USDA loans require no down payment. Income limits vary by household size. USDA loans require relatively low-cost guarantee fees, to be paid both up front and annually, instead of private mortgage insurance.
BBVA's Home Ownership Made Easier (HOME) loan aims to help qualifying low and moderate income customers borrow 100% of a home's purchase price without paying any down payment. The HOME mortgage does not require you to purchase private mortgage insurance. BBVA will help with up to $3,500 in closing costs and provide home ownership education.
Borrowers may use gifts and qualified down payment assistance programs to help qualify for this loan. They do have to supply $500 of their personal funds toward the purchase. The home buyer's income can't exceed 80% of the area median, or the home must be located in a low-to-moderate income census tract.
A HomeReady® Mortgage is part of a Fannie Mae program designed for low-to-moderate income buyers and requires only a 3% down payment. It offers flexibility in funding the down payment and closing costs, allowing borrowers to use multiple cash sources, including gifts, and none of their personal funds.
While this loan requires private mortgage insurance, the borrower may be able to cancel it once they have 20% equity in the property. While they serve similar consumer populations, HomeReady® is a Fannie Mae loan available through lenders nationwide, while HOME is specifically a BBVA product. It's best to talk with a lender to help you figure out which mortgage works best with your circumstances.
If you don't have enough savings to cover the minimum required down payment on a loan, you have several options.
The rules may vary depending on your individual situation, so consult a tax expert if you go this route.
The content provided is for informational purposes only. Neither BBVA USA, nor any of its affiliates, is providing legal, tax, or investment advice. You should consult your legal, tax, or financial advisor about your personal situation. Opinions expressed are those of the author(s) and do not necessarily represent the opinions of BBVA USA or any of its affiliates.
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