Down Payment Panic?

A Bit Of Government Assistance Might Help


It’s no secret that coming up with a down payment can be the biggest challenge for home buyers today. You might have good credit and enough income to handle your monthly mortgage payments, but coming up with a down payment of 10% or even 5% of a home’s purchase price? That can be a financial struggle.

Consider that a down payment of 10% on a home costing $175,000 would come out to $17,500. That’s a lot of money to scrape together. Even if your down payment is just 5% on that same home, you’re looking at an upfront payment of $8,750—still a lot of money.

Home loans insured by the federal government can help. That’s because these loans require either small or no down payments.

There are three government loan programs you can consider as an alternative to conventional mortgages:

1. FHA Loan: Loans insured by the U.S. Department of Housing and Urban Development’s Federal Housing Authority are typically known as FHA loans. They’re attractive to borrowers because those with FICO credit scores of 580 or more can qualify for a down payment as low as 3.5% of a home’s purchase price.

If you’re looking at that $175,000 home, that 3.5% down payment comes to $6,125—a smaller financial burden.

FHA loans also come with more lenient credit requirements than do traditional conventional mortgages, those not insured by a government agency.

Be aware, though, that there is an additional cost in taking out an FHA loan: You will have to pay FHA mortgage insurance for the life of your loan. With a conventional mortgage loan, you can drop private mortgage insurance after you build at least 20% equity in your home.

2. VA Loan: A VA Loan, insured by the U.S. Department of Veterans Affairs, is a great alternative for active-duty or retired members of the U.S. Military. Why? VA loans require no down payments at all, which can make financing a home a far easier task. VA loans also don’t require mortgage insurance, so they are not quite as costly as an FHA loan.

There is one catch: VA loans aren’t available to just anyone. You must be a member or veteran of the U.S. Armed Forces, U.S. Military Reserves or Coast Guard to take out one of these loans. You can also qualify for a VA loan if you are the spouse of a service member who died while serving in the military or from complications from this service.

3. USDA Loan: The final type of mortgage insured by the federal government is the USDA loan, insured by the U.S. Department of Agriculture. Like the VA loan, the main selling point of this loan is that it doesn’t require a down payment.

As with the VA loan, eligibility is limited. To qualify for a USDA loan, you must be buying a home in a rural area. You must also meet certain income limits.

To find out if the home you want to buy is eligible for a USDA loan, log onto the program’s home page at www.USDA.gov and search for the site’s property eligibility tool. You can then enter the home’s address to determine if you will qualify for a USDA loan.

No matter the loan program you are interested in, contact us today. We’d be happy to discuss down payment requirements for a variety of mortgages to fit your financial needs.

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