Coming up with the funds for a down payment is often quoted as the biggest roadblock to home ownership for first-time home buyers. According to a Trulia’s latest housing prediction survey of more than 2,000 American adults, more than 50% of respondents said saving enough for a down payment is the largest obstacle to home ownership.
Additionally, it would take an average of 12.5 years to save up for a 20% down payment at the current annual savings rate of 5.6% reported by the St. Louis Federal Reserve, according to a report from real estate information firm RealtyTrac, which analyzed 500 U.S. counties.
And it’s easy to understand why. If you’re paying rent, student loans and other expenses on top of saving for an emergency fund and retirement, accruing additional thousands of dollars for a down payment can be a challenge.
Though the traditional down payment is 20% of a home’s purchase price, mortgage companies, such as Castle & Cooke Mortgage, offer several lower down payment mortgage options, including 3.5% down payment for an FHA (Federal Housing Administration) loan and as little as 3% down payment for some conventional loans.
No Down Payment Mortgages
While there are plenty of low-down payment mortgage programs, no down payment options are a little harder to come by. However, VA (Veterans Administration) and USDA (U.S. Department of Agriculture) Loans are two no down payment solutions worth exploring.
VA mortgages are government-backed loans designed to support military veterans and active duty service members by allowing for no down payment and no mortgage insurance. The loan program also features reduced interest rates and limited closing costs.
If you’re in a unique situation where you have enough to afford monthly home payments, but are lacking the savings for a down payment, or you may just be looking to escape city life, a USDA Rural Housing loan may be a good option to explore.
USDA loans assist moderate- to lower-income earners purchasing homes in non-urban areas. The program includes a 100% financing option, limited closing costs and low down payment and interest rate options. USDA loans also require mortgage insurance.
Most “modest homes” are eligible and maximum income requirements vary by area. Click here to determine if the home you want is in a designated USDA eligibility area.
FHA Mortgages: 3.5% Down Payment Option
A popular choice for home buyers, FHA loans required just 3.5% down toward the purchase of a home. Generally, the program features less stringent qualification criteria than conventional mortgages. The FHA loan program looks at the borrower’s big-picture situation, and reduced credit or poor credit situations will not completely disqualify borrowers. Like the USDA loan option, FHA mortgages require mortgage insurance.
Mortgage limits for FHA financing will vary by area. Click here to check the current limits established for your area.
Conventional Mortgages: 3 to 20% Down Payment Options
Conventional loans offer qualified buyers the option to make a minimum 3% down payment on a home. However, the tradeoff could mean a higher interest rate and private mortgage insurance (PMI), which is required for conventional mortgages with less than 20% down. PMI can be paid monthly with your mortgage payment, built-in to your mortgage rate, or upfront at the time of closing. The cost of PMI and your interest rate will vary based on your credit score.
Before you begin your home search, be sure to reach out to your local mortgage lender to determine what you qualify for. You may also be eligible for regional and state down payment assistance programs, too.