Buying your first home is stressful enough, but coming up with the recommended 20% down payment on a low income? That’s downright terrifying. Many folks these days currently rent AND live paycheck to paycheck, so when you decided to start looking for a place of your very own, it’s important to understand the different mortgage and down payment options available to people in your situation. And let’s be real! There are a lot of people looking for a low-down-payment home loan.
There may be more options available than you think, but let’s not get overwhelmed and focus on the main three: FHA, Conventional 97, and USDA. There’s also a program through the VA for military veterans, and while you might not qualify as a Veteran, there still could be options for you as a family member of a Veteran. We’ll post about that another time-there is a lot of information there!
FHA loans are some of the easiest to get. The Federal Housing Administration backs the loan, which allows lenders the wiggle room needed to take a risk on low-income buyers, though we do want to point out that the government doesn’t actually fund the mortgage. The lowest down payment option is a mere 3.5%, which is fantastic when you think about the average home prices today. A $200,000 mortgage would usually require a $40,000 down payment, if you wanted to put down 20%. With an FHA loan, you could make a down payment of as little as $7,000! Another perk is that the credit requirements aren’t super strict, so if you’re repairing your credit, this is a great option.
Few things are better than paying 3.5% for a down payment, and one is paying 3%, which is what can happen with a Conventional 97 loan. This program is offered by Fannie Mae, and is specifically designed for people who can only afford that 3% down payment. The trick with this one, if you can call it a trick, is that the credit requirements are stricter than with an FHA loan. When your student loan payments get away from you or your credit gets a little down, it might not be the best option for you.
We saved the best for last: USDA loans. What’s better than a minuscule 3.5% or 3% down payment? No down payment at all! This is another government backed program, like FHA loans, but backed by the United States Department of Agriculture. The only catch with this program is that the home must be in one of the selected rural areas. This program is ideal for many people looking to realize the American dream. Candidates need to meet certain credit, income, and location requirements, and the time to close on a USDA loan is around 45 days – but overall it’s a terrific deal for anyone looking to buy a home in a quiet rural spot just outside of town.
Interested in starting your loan process today? Contact us and see what option works best for you.