As a first time home buyer, you likely will have to borrow money to buy a home. When you borrow money to finance the purchase of a home, your loan is called a mortgage loan. Most mortgage lenders and loan programs require the buyers to make some kind of down payment. The down payment is the amount you will have to pay out of your savings for the home.
The amount of down payment required is usually a percentage of the purchase price. For example, if you purchase a home for $100,000, you may have to put 10% down, or $10,000. For first time home buyers, however, many financing programs require much less than that as a down payment. It pays to research first-time buyer lending programs to figure out exactly how much money you will have to put down.
Are You a First Time Home Buyer?
You are considered a first-time home buyer if you have never owned a home. You may also be considered eligible for some first-time buyer lending programs if you have not owned your principal residence within the past three years. If you are not a first time home buyer, you may still be able to qualify for no-or-low down payment mortgage loans.
For example, if you are a military service member or veteran, you are eligible for a VA loan that usually requires nothing down. You may also qualify for first-time homebuyer status if you buy property in specific areas targeted for redevelopment. If you are buying a property in a rural area, you may be eligible for a USDA loan which also requires nothing or little down.
First Time Buyer Low Down Payment Mortgage Programs
The primary advantage of a low down payment mortgage is that it lowers the upfront costs of buying a home. For some buyers, however, it may make sense to put down more than the minimum down payment required. Making a bigger down payment will reduce your monthly payments by some amount. Be sure to work with your lender to figure out what makes the most sense for your personal financial situation. Below is a list of lending programs available to help first time home buyers with the down payment:
The FHA loan is a very popular mortgage loan program among first time home buyers. “FHA” stands for the Federal Housing Administration, the Federal government agency that guarantees the loans. For first time home buyers and those with less than stellar credit scores, an FHA loan requires as little as 3.5% down. On a $100,000 house, that amounts to a down payment of only $3,500, which is $6,500 less than you would pay on a conventional loan with 10% down as described earlier. Qualifying for an FHA loan is easier than qualifying for other mortgage loan programs. In addition to making a minimum down payment of 3.5%, the other requirements set by the FHA that a borrower must meet to qualify for an FHA loan are:
- A credit score of 500 or higher
- A debt-to-income ratio of 50% or less
- The home will be the borrower’s primary residence
You will have to pay an upfront mortgage insurance fee of about 1.75% of the purchase price, and you will have to pay a mortgage insurance premium each month as part of your monthly house payment. It pays to shop around for an FHA lender. One lender might require a minimum credit score for an FHA loan at 580 rather than 500, while another FHA lender may loan to borrowers with a credit score of 500 but require a higher down payment.
Conventional 97 Loan
If you have a credit score in the mid- to high-600 range, you may be able to get a Conventional 97 loan with just 3% down. You must also have a debt-to-income ratio of no more than 43%, that is, your total debt can take up no more than 43% of your gross income. If you qualify, you do not have to pay an upfront mortgage insurance fee.
Other Low Down Payment Loan Programs
As mentioned above, you may be eligible for a low or no down payment loan regardless of your status as a first time home buyer. The VA and USDA loan programs are among those. Additional programs to consider are the HomeReady program from Fannie Mae or Home Possible Advantage from Freddie Mac. The two programs are similar in that they let you finance up to 105 percent of the purchase price when combined with a community second mortgage. Both let you borrow up to 97 percent of the property value with a first mortgage. However, the programs have some differences and you should discuss those with your lender.
Contact the Mortgage Lending Experts at Fairfax Investment Mortgage for more information
Whether you are a first time home buyer or a repeat buyer, it pays to shop around for the best financing. The mortgage lending specialists at Fairfax Investment Mortgage are available to help you find the best loan program for your needs and get you into the home of your dreams fast. Contact us for more information.