Low First Time Home Buyer Down Payment Options
If this is your first time purchasing a home, you will most likely face more hurdles than repeat buyers.
First-time buyers face conflicts such as having less savings, an accumulation of student loans and debt, beginning a career, or having no knowledge of mortgages. New buyers could even be living on their own for the first time.
First time home buyers account for one-in-three homes sold nationwide. This is the lowest rate in 30 years. This is a great opportunity for first-time home buyers due to low mortgage rates and an abundance of low and no down payment mortgages available from lenders.
What Is a Downpayment?
If you don’t purchase a home with cash, you need to finance or “mortgage” your house. Occasionally, a bank will lend you the entire amount needed to purchase a home. This is known as 100% financing. Despite that, most mortgages require some contribution from a borrower. For example, If a home was purchased for $100,000 and $90,000 was borrowed (90%) you would pay $10,000 initially (10%). This amount is your down payment.
Choose Your Loan Amount
As a first time homebuyer, the amount of your down payment is up to you. You can choose to put 20% down or more or you can skip it altogether. You have the ability to decide which works best for you.
For example: If you choose to put more money down, you borrow less money from your lender up front, which will reduce your monthly payment. This may also open you up to lower mortgage rates.
On the other hand, when you make a small down payment, you are left with extra cash to use for other things. This also comes with the perk of buying today versus waiting and saving up for a downpayment for years.
How Much of a Down Payment Is Required To Buy A Home?
As a first-time homebuyer, you have access to a wider range of loans and these loans can be used to meet your needs. The FHA loan, the VA loan, the USDA loan, the Conventional 97 and the home ready mortgage are the five most common low- and no-down payment loans used by first time home buyers.
The FHA Loan: Loans require 3.5% down payment of a home’s purchase price. The program typically allows below-average credit scores.
The VA Loan: Available to U.S. Military and veterans of the armed services. 100% financing option available, typically lower than other programs.
The USDA Loan: This loan is designed for rural housing and allows 100% financing. It’s available in rural areas and less dense suburban neighborhoods worldwide. These rates are typically as low as VA mortgage rates.
The Conventional 97: Available to buyers with above-average credit scores. Allows buyers to receive cash gifts for their payments which is typically 3%. The Conventional 97 has a loan size limit of $679,650.
The Homeready Mortgage: This is another 3% down program. All homebuyers are welcome to apply although it is geared towards multigenerational households. This loan gives people access to discounted mortgage rates and, in order to get mortgage qualified, applicants can use income from boarders and other household residents.