Most people believe that you need $5,000, $10,000 or even $20,000 to purchase a home. This used to be the case, but simply isn’t true any more. Many programs exist to help reduce or eliminate the need to invest any of your cash at closing. This is a brief summary of the programs available for low down payment financing options.
These loans are insured or guaranteed or insured by the Federal Government, allowing the lender to make loans available with little or no down payment. Generally speaking, because the lender has a government guarantee or insurance, these programs will offer the best interest rates and lowest payments for low or no down payment loans. The three major programs are:
FHA is an abbreviation for Federal Housing Administration. This agency was established to help get homeownership re-established during the great depression. FHA has multiple programs that allow people to purchase a primary residence with as little as a 2.25% down payment.
Frequently we can combine the FHA program with a local gift or grant program to allow the borrowers to have no cash of their own in the transaction.
There are special programs within FHA for:
• Purchasing an owner occupied single family home
• Purchasing owner occupied duplexes or 3-4 unit properties
• Purchasing an owner occupied condominium
• Purchasing and improving a home
Loans are not restricted by geographic location, but there is a maximum loan size. For example in most areas the maximum loan amount for a single family home is $160,176. The loan limit is higher in select locations that have higher average sales prices.
VA is an abbreviation for Veterans Administration. This agency was established immediately after World War II to help returning servicemen purchase homes. It is still an extremely viable and active loan program.
VA loans allow the veteran to purchase a home with no down payment, and can be structured to allow the borrower to close with no cash investment.
A military service period is required. The minimum service period for reservists and National Guard service is 6 years. The time period for active service varies by service date and/or conflict period.
There is no geographic restriction on the program. The current maximum loan available for guarantee by the VA is $300,700. Loans over $240,000 may require some down payment and the amount of eligibility available to the veteran.
To qualify for a VA loan, a veteran must have a Certificate of Eligibility. The certificate can be requested through your local Veteran’s Service Officer or by mail from a VA eligibility center. The request form is VA Form 1880. We can assist you in completing and ordering the certificate.
The certificate will show an amount of guarantee that is available for the Veteran. Currently, most certificates will show an amount of $36,500. A common misconception is that this is the maximum loan the veteran can obtain. Fortunately the loan can be much larger as it’s nearly impossible to find a home in this price range! This is just a number that the lender uses as part of the process of determining the maximum loan available with no down payment.
The Rural Development program is part of the Department of Agriculture. The primary function of their single family program is to assist homeownership in rural and smaller communities across America. We call the loan “Small Town USA”.
Many of the large national lenders have issues with the appraisals in small towns or rural areas. RD understands the unique nature of the properties in these areas and specializes in loans for them. There is no down payment requirement and the loans can be structured with no cash investment by the borrower. A benefit of the program is that there is no monthly mortgage insurance paid, even if you purchase with no down payment.
There are geographic restrictions. The home must be in an area defined as rural by the Department of Agriculture. There is no maximum loan amount but there are income restrictions that vary by area and family size. There are other programs not insured or guaranteed by the government that still allow the purchase of a home with little or no down payment.
1st Home Purchase Programs
Some state or local governments make no down payment financing available for borrowers that haven’t had an ownership interest in a primary residence during the past 3 years. These loans will often have very favorable interest rates but are generally for excellent credit borrowers. Income and purchase price limits may apply.