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Thinking about buying your first home is an exciting process. It can also be stressful, especially for those who are unsure how they will come up with a down payment. The National Association of Realtors found that 25% of individuals feel that saving for a down payment is the most difficult part of the homebuying process.
You may think in order to purchase your own home, you need a large down payment. The good news is that there are loan programs that allow for the use of gift funds, down payment assistance, or other first-time buyer specialty programs to help you in achieving your goal of becoming a homeowner. Read on to see how you can afford your first home and move past the daunting down payment.
1. Down Payment Assistance Programs
State or local down payment assistance programs help make the dream of home ownership a reality for those who don’t have 20% to put down. Many of these programs reduce or eliminate the need for a down payment. They are often in the form of an interest-free, “silent” second mortgage that doesn’t need to be repaid until the house is sold, refinanced, or paid in full.
One example is California Housing Finance Agency (CalHFA) MyHome Assistance Program, which offers a second loan up to 3.5% of the purchase price or appraised value to help with down payment and/or closing costs.
Another option is the Freddie Mac Home Possible Advantage, where low to moderate-income buyers can get up to 97% financing and down payment assistance and/or affordable second mortgages.
Programs vary by state and city. To find down payment assistance programs near you, contact your state’s Department of Housing and Urban Development (HUD).
2. Gift funds
It’s wonderful to have a family member or close friend who wants to help you achieve your dream of home ownership. Different loan types will allow a different percentage to come from gift funds. Talk to our Mortgage Loan Advisor for more information on this.
3. Understand the different loan types and Identify which could work for you.
Not every loan requires you to put 20% down. There are multiple types of loans, each with their own requirements for down payment amount.
FHA Loans are government backed and ideal for first-time homebuyers. With an FHA loan, your down payment can be as low as 3.5% and gifted. With more lenient qualifying guidelines, FHA loans make homeownership accessible to more people.
VA Loans help veterans, active military persons, and surviving spouses obtain their dream homes. VA loans are available with 100% financing, and many veterans can borrow up to 100% of the home value.
USDA Loans are the only government backed loan program that offers 100% financing for qualifying borrowers. A USDA loan is a great option for first-time buyers looking for a no down payment option who want to purchase rural property outside of major metro areas. USDA loans do have some very specific eligibility requirements, including the location of the property.
Home Ready by Fannie Mae is an alternative to FHA loans offering a conventional 3% down loan with even more flexible income qualification guidelines. In addition, Home Ready may have reduced mortgage insurance options, including no upfront mortgage insurance fees and may be cancelable per servicer/Fannie Mae guidelines.
Saving for a down payment doesn’t have to be overwhelming or keep you from becoming a homeowner. Talk to a Loan Advisor today to help assess your situation and see which loan program is a good option. Loan advisors can be a resource of information and provide guidance early on in the process so you can make an informed decision. Your loan advisor can help you understand the different programs available to help you achieve your goal of homeownership.
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