Sometimes coming up with the cash for a down payment is the hardest part of any real estate purchase, especially for young couples entering the market for the first time. However, there are mortgages that let you put up a minimal down payment and get into housing. In this article, we'll cover PMI mortgages, VA mortgages, FHA mortgages and FmHA home loans. Keep reading to learn how you can break down the down payment barrier.
1. PMI (Private Mortgage Insurance) Mortgages
If you can't come up with a 20 percent down payment, your lender may offer you what's called private mortgage insurance. Since your lender is taking on a greater risk, you will pay for extra insurance on that risk until you've built up enough equity in the home to hit that 20 percent marker.
If you go this route, keep an eye on your equity and principle balance so you don't keep paying PMI after you've hit your equity marker.
2. Federal Housing Administration (FHA) Mortgages
The Federal Housing Administration (FHA) is an agency of the US Department of Housing and Urban Development (HUD). They help prospective homeowners through a program that insures private loans with down payments as low as 3 percent.
The actual money for the mortgage comes from a private lending institution, not the government, so you need to find a lender in your area that offers FHA mortgages. FHA maximum loan amounts will vary by region and country, but they tend to range between $172,000 and $400,000 for single-family homes.
3. Veterans' Affairs (VA) Loans
VA loans are given to members of the armed forces, veterans or widows of veterans. The most attractive element of the VA loan is that no down payment is required whatsoever.
While the money still comes from a private lender, the Department of Veterans Affairs contributes by guaranteeing the loan at no cost to the veteran. To qualify, a veteran must have a discharge that is "other than dishonorable" and meet specific service duration requirements.
4. Farmers Home Administration (FmHA) Loans
In rural and farming areas, the Farmers Home Administration (FmHA) sometimes provides direct mortgages. If your income is low and falls within a specific limit requirement, you can use these mortgages to purchase a modest home on less than one acre of property with interest rates that are affordable and set according to your income.
This program is intended for rural buyers who can't obtain financing elsewhere, and the money is distributed locally every quarter. Prospective homeowners should contact their local FmHA office for details.
