Also check out the information further below about our FREE Ultimate Home Buying Toolkit and Movin’ On Up Guide!
No/Low Down Payment Programs
USDA Loans
The USDA home loan program allows for $0 down payment to purchase a home. Additionally, the closing costs can be rolled into the loan amount for nearly a $0 move-in cost! Add in low monthly mortgage insurance, a more favorable outlook on credit history, and a typically lower interest
rate compared to Conventional loans, and you can see why this is such a
great program.
USDA mortgages are only eligible for designated rural areas. There are also income limits to be eligible, and it must be used as your primary residence.
Example: A USDA 30 year fixed mortgage of $250,000 (loan amount), with a $0 down payment and 6.75% interest rate (7.568% APR) would equal a monthly payment of $2,179 including principal, interest, taxes, and insurance (PITI).
VA Loans
VA home loans are for both retired veterans as well as active duty service men and women, including the reserves! This mortgage program also allows for $0 down payment and offers interest rates typically lower than Conventional rates. If you have a service connected disability, there are even more benefits.
VA loans do not have income requirements, but the loan amount cannot exceed $625,500 except in certain high-cost areas. There is an upfront funding fee of up to 3.15% (depending on eligibility, service connected disability, etc.), but this can be rolled into the loan amount.
Example: A VA 30 year fixed mortgage of $250,000 (loan amount), with a $0 down payment and 7.25% interest rate (7.525% APR) would equal a monthly payment of $2211 including principal, interest, taxes, and insurance (PITI).
FHA Loans
While not a $0 down payment mortgage loan program, FHA loans offer a low down payment option of 3.5% for those that are not purchasing a home in a rural area (USDA loans) or a Veteran (VA loans). FHA loans also offer typically lower rates than Conventional, and is more flexible/lenient on past credit issues.
The biggest down side to the FHA loan is the lifetime monthly insurance premiums (MIP). The MIP is also typically higher than monthly insurance on comparable Conventional loan programs. The lifetime MIP can be avoided with a 10% or more down payment.
Example: A FHA 30 year fixed mortgage of $250,000 sales price, with a $8,750 (3.5%) down payment and 6.75% interest rate (8.011% APR) would equal a monthly payment of $2171 including principal, interest, taxes, and insurance (PITI).
Conventional Loans
For well-qualified buyers, conventional mortgages offer flexible down payment options, starting as low as 5%, with first-time homebuyers potentially qualifying for just 3% down. Although mortgage insurance (MI) is required for down payments under 20%, it automatically cancels once you reach a certain equity level in the home. You can also discuss with your loan officer strategies for removing MI earlier or even avoiding it altogether, depending on your financial situation and home value changes.
Example 1: A CONV 30 year fixed mortgage of $250,000 sales price, with a $7,500 (3%) down payment and 6.99% interest rate (7.743% APR) would equal a monthly payment of $2197 including principal, interest, taxes, and insurance (PITI).
Example 1: A CONV 30 year fixed mortgage of $250,000 sales price, with a $12,500 (5%) down payment and 6.99% interest rate (7.508% APR) would equal a monthly payment of $2122 including principal, interest, taxes, and insurance (PITI).
Ways to help
with downpayment
or closing costs
Down Payment Assistance Programs
Down payment assistance programs are designed to help homebuyers cover some of the upfront costs of purchasing a home, making homeownership more accessible. These programs often come in the form of grants, loans, or forgivable loans that can be used to cover a portion or all of the down payment. Eligibility criteria vary, but many programs are aimed at first-time homebuyers, low- to moderate-income families, or those purchasing in specific areas. To find the best program for your needs, it's best to consult with one of our loan officers who can guide you through available options.
Gifts from family
In many cases, a family member can gift you money in order to help with your down payment and closing costs. But before you run to your parents, grandparents, or that rich uncle, understand that there are restrictions, and you need to check with your mortgage expert first. FHA, USDA, and VA loan programs handle gift funds differently than Conventional loan programs. For example, while a close friend with a clearly defined and documented interest in you purchasing a home might be able to gift you monies on an FHA transaction, Conventional does not allow it at all. Even the definition of fiancé or domestic partner differs by loan program type. No matter what, though, the donor or "gifter" can never be affiliated with the builder, developer, real estate agent, or any other interested party in the transaction unless they are a family member. Gifts are never allowed on investment property transactions either.
Personal Property
If you are a first time home buyer, then it is highly likely that you do not have net proceeds from the sale of a home to use for down payment. So instead, some home buyers choose to leverage what they already own to get the extra cash for a down payment on a new mortgage loan.
For example, if you own a car you may choose to get a title loan for what the car is worth, but the car is collateral. Because the loan is backed by something of actual value (collateral), it is referred to as a "collateralized loan" or "secured loan". The new payments you must make on the collateralized loan must be considered in your qualification for the mortgage loan. This may significantly reduce the mortgage amount you could qualify for, or even prevent you from being qualified at all.
Instead of taking out a loan on your personal property, you may choose to sell it outright. While this is generally an acceptable source of funds, there is specific documentation that will be required. With all these lending rules it is so important to talk to a true mortgage expert like the ones at Fairway Independent Mortgage Corporation - The Heritage Group before considering any of these options.
Premium Pricing
When a lender quotes a rate it is typically at what is known as "par". This essentially means that it is the lowest rate possible without costing anything extra. However, a lender can quote a higher rate and receive a rebate to give back to the buyer to help with closing costs. For example, a 4% interest rate may be at par, but a 4.5% interest rate might provide a 1% rebate. For a $100,000 loan, that's $1,000 that can be used to pay closing costs. The difference in monthly payment on that same $100,000 loan with the 0.50% higher rate is about $30 per month.
Be careful! Though this option will help you with your closing costs, it will cost you more in interest over the long run. Additionally, the rebate CANNOT be used for your down payment.
In general, if you plan to live in the home for less than 7 years then premium pricing may not be a bad idea. However, if you plan to stay longer there are better options you should really look at first. Ask your mortgage expert at Fairway Independent Mortgage Corporation - The Heritage Group for details and advice.
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