Low down payment mortgage - What are your options?

If you want to apply for a conventional loan, you might have to put down a 20% down payment at the time of buying the home.

But do you always need to save up that 20% before you can buy?

If you’re having difficulties to arrange the money for a big down payment, there are other ways to buy a home with a low down payment mortgage.

Here are the options where you can qualify for a low down payment mortgage. But you should also know when you should go for that option.

When are no down payment mortgages a good idea?

If you want to buy a new house desperately, but you don't have any big source to arrange cash for the down payment – then it is the perfect time for a low down payment mortgage.

Or, if you are getting an irresistible offer on a new house that’s coming your way, you can choose a no down payment loan.

Mortgage interest rates could be very low sometimes due to different economic and social issues. So, as per industry experts, that particular time is perfect for the consumers to lock interest rates before they start getting higher again.

When are no down payment mortgages a bad idea?

The biggest drawback of a no down mortgage is putting no money. If you finance 100% of a home purchase, your home equity share will be zero in the property. So, practically, you don't own any part of the property, as you might have if you'd put a down payment. Also, in the coming years, you won't get any solid equity until you have paid back a decent part of the mortgage.

As you don’t own any share of the home equity, the lender might consider you as a high-risk borrower. As a result, you might need to pay towards secure private mortgage insurance (PMI) before signing off on the loan.

The private mortgage insurance is for keeping your home safe as well as the lender's interest in that house. Private mortgage insurance protects the mortgage lenders if you fail to pay back the loan. Private mortgage insurance typically costs between 0.5% to 1% of the entire loan amount.

Now, let's discuss the resources and programs available:

1. Credit union financing

Few credit unions may offer you low or no down payments if you meet few criteria or a certain credit score level.

For example - The Navy Federal Credit Union provides 100% financing (without any down payment) to the Navy officers, individuals with military experience, or to their family. Other credit unions, such as the NASA Federal Credit Union and the Travis Credit Union, also provide no money down or low down payment mortgage financing with few strict criteria.

2. First-time homebuyer program

Many financing programs are available to the first-time homebuyers provided by the credit unions and financial banks. Several programs also are offered through the government.

a. The HomePath Ready Buyer program offers a good option for first time buyers. Borrowers can get up to 3% of the purchase price while paying the closing cost, if they complete the homebuyer education course.

b. The HomeReady program helps the new buyers to get homes in the lower-income neighborhoods.

First-time buyer programs have various criteria on credit score, income limits, employment status, debts and obligations, etc.

These can be summed up like:

1. Credit score should be at least 500
2. Debt-to-income (DTI) varies based on programs
3. You must be a U.S. citizen, permanent resident or other qualified alien.
4. You need to live in the home you are purchasing for the entire term of the loan, or until the home is sold or refinanced.

To take advantage of these programs, you have to buy a house whose value should not exceed as per the criteria based on the program you’re enrolling in.

Apart from that, each state also holds the authority to state their requirements as well. So you better talk to your lender to know about all the requirements to qualify for a particular program.

3. Navy Federal Loans

Navy Federal Credit Union is the largest credit union in the nation. They offer 100% financing to the qualified members to buy primary homes. Navy Federal loans are offered only to the people who are members of the military, some civilian employees of the military, U.S. Department of Defense, and their family members.

The credit union's zero-down program is identical to the VA's. There’s one difference between the two loans, Navy Federal loans have funding fee of 1.75%, which is lower than the VA loan funding fees.

There are several other resources to get low down payment mortgages, please visit here to know more.