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Mar 2021

4 Loan Programs with Down Payment Flexibility

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What loan programs are available

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Loan program with flexibility and their requirements

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What loan programs are available

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Loan program with flexibility and their requirements

Sometimes buying a home can feel like an obstacle course filled with hurdles, hoops, and hills; especially when it comes to figuring out how to fund a down payment.

Saving up enough money to make a down payment is one of the biggest challenges keeping many from starting their home buying journey. But it doesn’t have to be. Did you know that there are loan programs that don’t require you to make a big down payment on your new home, and some that require none at all? 

Let’s dive into some of the mortgage programs with flexible down payment options. These just may be the key to getting you well on your way to homeownership. 

1. VA Loans  

VA loans are guaranteed by the U.S. Department of Veteran’s Affairs to help the men and women of our armed forces finance their dreams of homeownership. As a guaranteed loan, the VA will protect the lender from loss and cover the loan, if a borrower defaults on their payment. This lets lenders skip their down payment requirements without risking huge losses.  

VA loans allow you to completely finance your new home without paying for mortgage insurance.  

Conventional loans require you to pay for mortgage insurance if you make a down payment of less than 20%. But, VA loan borrowers don’t need to worry about this, which can lead to thousands of dollars in savings each year. 

VA Requirements: 

VA loans are available to people who meet the income, credit, and military service requirements set by the VA. This is a great program to consider if you or your spouse have served in the armed forces because it is exclusively for:  

  • Veterans  

  • Surviving military spouses  

  • Active-duty military

  • National Guard members

  • Reserves members  

If you’re approved for a VA loan, you’ll have to find a house that also meets the program’s requirements. To be financed, the property must be used as the borrower’s primary home and held up against the minimum appraisal standards set by the VA. 

Don’t Forget Housing Entitlements:  

VA loans are directly tied up with individual housing entitlements provided by the VA, which will only guarantee to cover your loan to a certain extent. If you use up your entitlement or want to finance a loan that exceeds your limits, a down payment may be needed. 

2. USDA Loans 

Like VA loans, USDA loans are also guaranteed by the government. In this case, they are covered by the US Department of Agriculture. Though there are a few different loan programs offered by the USDA, they’re all designed to help people affordably purchase homes in rural areas. This is ideal if you’re searching for a picturesque house in the country and want to nix your down payment.

One of the most attractive things about USDA loans is that they don’t require down payments from qualified borrowers. You can finance the whole cost of your new home, or you can choose to add a down payment to reduce your total loan amount.  

USDA Insurance and Geography Requirements: 

Even though you won’t need a down payment, USDA loans are required to have mortgage insurance. This can add to the overall cost of your loan. This insurance has an upfront fee that can be financed into your loan, plus an annual percentage fee. 

The USDA loan program can only finance homes in rural areas and are for low-to-moderate income homebuyers.  

Not every property can be financed with this program. But the USDA has a broad definition of rural that might surprise you. To find out if your new home makes the cut, check out the map provided on the USDA website showing where the limits begin and end.

USDA Limits:  

Along with geographic limits, the program also has maximum income limits. To qualify for a USDA loan, you cannot earn more than 115% of the median income for area that surrounds your new house; meaning that income requirements will change depending on where you’re house hunting. Eligibility is also dependent on acceptable credit and ability to repay.  

 Some parts of the USDA loan program also have sales price limitations. The Direct Home Loan Program cannot be used to purchase a home that has a sale price higher than the limit set for that particular area. Just like the income requirements, these limits can change depending on where your new house is located. 

3. FHA Loans  

If you’re a first-time homebuyer, you may hear about the FHA loan as a possibility. But, why? Is there a special reason why the FHA loan is so appealing to a first-timer homebuyer? Does that mean it’s not an option for other borrowers? Before we answer those questions, let’s talk about who FHA is. 

Who is the Federal Housing Administration (FHA)? 

Administered by the U.S. Department of Housing and Urban Development (HUD), FHA was established in the 1930s as an insurer of mortgages to help stimulate the housing industry. Mortgage insurance protects lenders in the event they stop making payments. By insuring loans, FHA makes mortgage loans more accessible. They are less stringent on requirements when it comes to your credit and down payment, so they’re more affordable to first-time homebuyers. 

FHA also allows you to get help from family for your down payment. There may even be grant programs available to help with the down payment if you can’t come up with 3.5%. 

 4. State Bond Programs or State Agency Programs  

Many states and some counties have agency or bond programs. These state agencies offer loans and programs that are intended to help boost the housing economy by opening up the market to as many buyers as possible.  

State programs  help make home ownership more affordable with reasonable financing options and down payment assistance.

Qualifying for a State Program: 

Most state programs have maximum income and sale price limits to ensure they continue to make the housing market more accessible. Just like USDA loans, these limits are based on the area in which your new home is located.  

Most of these programs are only available for first-time homebuyers or anyone who hasn’t owned a home in the past three years. You’ll likely be required to live in the  new property as your primary residence and you’re generally not allowed to use this home for a business.  

Not every lender participates with every agency, so be sure to ask your Mortgage Banker if there’s a program available and right for you.

We’re here to get you on the road to homeownership if you’re ready to take the next step with any of these loan programs or just want more information about them. We’re ready to help!