For many people, especially first-time buyers, "the lack of a down payment is the typical
hurdle" to homeownership, said Steve O'Connor, senior director of residential finance at the
Mortgage Bankers Association of America. Today, however, there are numerous special programs
with low down payments, some specifically designed for first-time homebuyers.
According to the Mortgage Bankers Association, there has been an expansion in the past few
years of mortgages with low 3 percent down payments. You should check with your bank or
financial institution about the requirements for any low down payment loans or first-time
buyer programs they may offer.
Specific programs
You can contact these agencies directly for more information, or ask your mortgage banker or
broker:
- Fannie Mae: This major
publicly-chartered corporation that buys mortgages from lenders and sells them to investors
offers a mortgage known as Fannie Mae97, which features a loan-to-value (LTV) percentage of
97 percent. It requires a 3 percent down payment on either a 25- or 30-year fixed mortgage.
It is primarily a loan for people with modest incomes who want to become homeowners.
Borrowers must take a pre-purchase homebuyer education session to qualify for this loan.
- Federal Housing Administration: This agency of the Department of Housing and Urban Development insures residential
mortgage loans made by private lenders. With FHA insurance, you can buy a home with a down
payment of from 3 percent to 5 percent of the FHA appraised value or the sale price,
whichever is lower. FHA mortgages have a maximum loan limit that varies depending on the
average cost of housing in a given region. Check out the latest bankrate.com survey of FHA mortgage interest
rates.
- Veterans Administration: The VA guarantee
allows qualified veterans to buy a house that costs up to $203,000 with no down payment. In
addition, the qualification guidelines for VA loans are more flexible than those for either
FHA or conventional loans. To determine whether you are eligible, check with your nearest VA
regional office.
- Rural Housing Service:
This agency of the Department of Agriculture provides financing to farmers and other
qualified borrowers buying property in rural areas who are unable to obtain loans elsewhere.
It offers low-interest-rate loans with no down payment to borrowers with low- and
moderate-incomes who live in rural areas or small towns. Check with your local RHS
office.
- State and local government programs: Many states or local housing agencies
sponsor programs to help first-time homebuyers who meet specified income guidelines. These
programs offer loan terms with a low down payments and/or low interest rates. Some state and
local programs also may offer down payment and closing cost assistance. Check with your
state or local housing authority.
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