Written by Blanche Evans
Credit is a little tighter than it used to be, but if you believe that you have to have 20% down and perfect credit to buy a home, you may be pleasantly surprised.
Bank loans are available with as little as zero down and a funding fee that can be rolled into the loan that are guaranteed through the Veterans Administration, for veterans and active-duty military. According to Bankrate.com, the funding fee varies from 2.15 percent to 3.3 percent, according to whether or not a veteran served in the National Guard or the regular military.
The Navy Federal Credit Union offers 100 percent financing to qualified members who buy homes they intend to occupy. Navy Federal eligibility is restricted to members of the military, some civilian employees of the military and U.S. Department of Defense, and family members, explains Bankrate, which makes it the largest credit union in the nation. And the funding fee is a low 1.75 percent.
The no-down-payment USDA Rural Development mortgage guarantee program is a well-kept secret. Loans aren’t just for farmland, but for homes in areas with small populations, many of which are near major metros.
For most bank loans, you’ll have to make some kind of a down payment, perhaps as little as three percent with good credit. A down payment is simply your way of showing the lender that you are willing to risk your money to buy the home you want.
The larger the down payment, the more likely the lender is to make the loan which is why most lenders will give better interest rates to borrowers with 20 percent down or more and good credit. Less money down requires a higher credit score and private mortgage insurance, which can add more to your monthly payment.
One advantage to PMI is that it can be canceled. Let’s say you put 10 percent down, and have a PMI payment. When your equity equals 20 percent or more, either through paying your mortgage or through home price appreciation, you can apply to the lender to have the PMI canceled.
The only loan that doesn’t allow cancellation is the FHA-guaranteed loan. The only way to cancel PMI is to refinance to a conventional loan.
Borrowers with less than perfect credit can get loans, as well. The credit score will tell the lender how much money you have to put down; it’s a factor in your interest rate. If you put 20 percent down, you can get a loan even if you have a low credit score of 580 or 620. If you have a 740 or 760, the lender will go with less money down.
It also matters where the downpayment money is coming from. Lenders expect first-time buyers to get help from family to buy a home, so there may be limits to the size or percentage of the downpayment gift that the lender will allow.
Down payment assistance can also come from grants. The FHA no longer allows seller-assisted down payments, but does provide a link to national organizations that may be of help. Also, check your local housing authority to see if there are grants available in your area.