How do I get a down payment?
Category : Home Loans
What Do I Do About A Down Payment?
The largest obstacle that many potential home owners face is raising enough money to make a down payment. What is a down payment? Most lenders will only loan a certain percentage of the purchase price so the potential buyer must pay the difference in the form of a down payment. Many potential buyers think that to buy a home in today’s market climate you must have a 20% down payment. Nothing could be further from the truth. This information was put together specifically to dispel this MORTGAGE MYTH. We will describe several loan programs and tools to help potential first time homebuyers understand some of the options available to them. So if you are tired of renting, read on.
Probably the most used program comes from HUD (Housing and Urban Develop). This is a government agency which is tasked with making housing more accessible and affordable to more individuals and families. Most potential first time home buyers have heard of an FHA (Federal Housing Administration, a department of HUD) but many do not know how it works. Lenders would not make loans above 80% without some way to mitigate the risk of the borrower defaulting on the loan, thus the 20% down payment most potential borrowers know about. In an FHA loan HUD does not loan the money but guarantees the loan so if the borrower defaults FHA will step in and cover any loses the lender might suffer because of the foreclosure. To do this FHA charges a fee called Mortgage Insurance. The borrower agrees to pay an extra insurance fee to cover the cost of this FHA guarantee to the lender.
All FHA loans carry this mortgage insurance fee. That is the down side. However, there are many upsides and the FHA loan program helps many potential homeowners realize the American Dream of homeownership. If you are tired of renting and can’t quite seem to save the supposed 20% the FHA option allows you to buy a home with only 3.5% down plus your closing costs for the loan which usually run about 1.5% os a total of about 5% down. Also keep in mind that many sellers will agree to pay your closing costs and there is a Home$tart Grant available through Liberty Bank for $7,500 which can also help. Liberty Bank has closed many loans with the borrower or new homeowner coming up with less that many apartments require initially to move in. (See Examples) There are no income limits with FHA loans but there are limits as to how much can be borrowed. Generally speaking, borrowers are limited to modest loan amounts depending on the home prices in the areas they wish to buy. Credit and debt ratios are much more liberal for an FHA loan affording many, many more applicants to get into a new home.
The VA Home Loan program was created to enable veterans to purchase a primary residence without putting down a deposit. The eligibility I determined by years of service and the VA (Veterans Administration) issues an eligibility certificate called a COE (Certificate of Eligibility) to the vereran. The sale price of the home cannot be more than the appraised value of the home. The program is open to veterans as long as they have the eligibility certificate and qualify in terms of income and credit which are also very liberal. Like the FHA loan a lender loans the money and the loan is guaranteed by the Veterans Administration in case the veteran defaults.
USDA mortgages are administered by the US Department of Agriculture. A number of different home loans are available through this program but are designated for the more rural areas. There are many areas in neighboring counties to Salt Lake County. Presently none of Salt Lake County or David County is designated eligible for USDA, however, some parts of Utah County, all of Tooele County and other neighboring counties have eligible areas.
The USDA loan is a very viable option and offers a 100% loan for potential buyers that desire to live in eligible areas. Like FHA and VA loans the USDA loan is guaranteed by the Department of Agriculture and they cover the losses if the borrower defaults. The USDA loan, however, has strict income and loan limits and more strict credit and debt ratio requirements.
Contrary to what many believe, the down payment required to purchase a home with a conventional loan can be as three percent. The down payment can come from a potential borrowers savings, a gift from a blood relative or from a Home$tart Grant or a small second mortgage from a qualified an NGO (Non-government Organization) like some approved non-profit or local government agencies or municipalities.
The best example of this is the 100% Utah Housing program that covers the down-payment with a small second mortgage that is completely separate from the first mortgage. The terms of the loan are somewhat flexible making the loan quite popular within Utah.
Liberty Bank in conjunction with the Federal Home Loan Bank of Des Moines offer prospective home buyers a unique federal grant program called Home$tart. The Home$tart Grant promotes homeownership by helping homebuyers earning up to 80 percent of area median income, adjusted for family size, purchase a home with a $7,500 HomeStart.
- Home$tart $7,500 grants may be used for down payments and/or closing costs for a single family house, including a condominium or townhouse, to be used as the homebuyer’s primary residence. Grants may be used in combination with funds from other sources.
- Home$tart Program funds will be made available to qualifying homebuyers who have not previously owned a home in the past three years, as well as to qualifying new first-time homebuyers.
- There are some income qualification guidelines, so be sure to ask your Liberty Bank Mortgage professional for the details of the program.
What Are You Waiting For, Let’s Get Moving!
This is just a few of the programs available to First Time Home Buyers that will allow them to get into a home without the Mythical 20% down payment. Please see examples of many of our recent transactions. These are real borrowers and real purchase transactions. (Click Here) You may also like to see what some of our recent First Time Home buyers have to say about their experience. (Click Here) If you’re tired of renting, make NOW the year you make your home ownership dream come true.