The credit crunch made a huge impact on the real estate market. Amongst many economic challenges, people were also facing immense difficulties in obtaining home loans due to banks enforcing stringent policies and regulations. Despite these challenges, to many, buying a house is a lifetime dream.
A few decades ago, home buyers were required to make a down payment of up to 20% on average. But today despite tough economic conditions, first-time home buyers have better alternatives with programs like the FHA and VA loans that offer low/no down payments.
Types of Low/No Down Payment Loan Programs
A huge segment of the real estate market constitutes first-time home buyers. But, most of them are not aware of the different financing options available to them. Here are some types of loans that are most suitable for first-time buyers looking for a low/no down payment option:
FHA (Federal Housing Authority) Loans: This is one of the best and most popular loan programs for first-time buyers. Since this program requires a down payment of just 3.5%, it is most suitable for moderate income groups. Also a minimal credit score is sufficient to opt for this program. In this loan program, the terms range from 10 to 30 years, and monthly payments are determined based on what the home buyer can afford.
FHA HUD (Federal Housing Authority – Housing and Urban Development) Loans: These loans have been designed for home buyers opting for foreclosures and REO properties which may require repairs or refurbishing. This loan program offers down payment options as low as $100 for those buying bank owned houses or houses that come up for foreclosure. Closing cost assistance up to $2,500 is also offered in this program. The terms range from 10 to 30 years.
USDA (United States Department of Agriculture) Loans: To be eligible for this loan, the household income of the applicant must meet certain guidelines. Also, this program is applicable only if the property is located in an eligible rural area as defined by the USDA. This loan program requires no down payment and no monthly fee for mortgage insurance. While the interest rate is one percent higher than the prevailing rate, in certain areas this program offers 102% financing if eligibility criteria are met.
VA (Veterans’ Affairs) Loans: These loans are exclusively designed for military veterans or their surviving spouses. Under this program, eligible areas are designated by the VA, which are generally small towns or rural areas not near metropolitan areas or commuting areas of large cities. This loan requires no down payment and offers 102.15% financing to eligible applicants. The interest rate on these loans is usually 1% less than the prevailing market rate, and the terms range between 10 and 30 years. The monthly payment on this loan is determined based on affordability. While applicants are required to pay a funding fee of 0-3.15% on their loan at closing, this fee can also be financed.
VA Disability Loan: Another category of VA loan, this program offers disabled veterans discharged from service due to medical reasons are a loan with no down payment. There is no funding fee for this program. However, the interest rates are 2% more than the prevailing market rate.
With so many financing options available, first-time buyers can find one that suits them best. If you are a first-time home buyer, you might want to consider buying REO properties, also known as bank owned properties. These properties are often priced below market value and coupled with low down home mortgages, you might just find the home you are looking for.