BUYING THAT FIRST HOME MAY BE EASIER THAN YOU THINK: SOME TIPS ON LEARNING ABOUT LOW DOWN PAYMENT MORTGAGE PROGRAMS
By Rick Thurtle:
One of the many myths about the purchase of a first home is the amount of down payment needed to get started. One of the many things I have learned over the last couple of years is the numerous opportunities that lenders offer that require little or no down payment to purchase a home. For many people a home is the largest single purchase an individual or family will make. The many tax advantages afforded to homeowners can make buying a home one of the best financial decisions you'll ever make. It will also allow you to become part of a booming real estate market we are experiencing at this time.
Many would-be, first time homeowners remain renters simply because they mistakenly believe mortgage lenders require that they must have 20 percent of the purchase price as a down payment. While this makes it less risky for lending institutions to receive a substantial down payment, the standard 20 percent requirement to purchase real estate is fast becoming an anachronism. In recent years, lenders have become more flexible in working with first-time home buyers by creating a variety of special programs that require only a small down payment. These programs, combined with the most favorable interest rates in two decades, have encouraged growing numbers of renters to consider the tremendous benefits of home ownership.
While the list of programs offered by individual lenders is too extensive to mention in detail, here are some common programs you are likely to come across as you work with your real estate agent to purchase your first home:
Federal Housing Administration (FHA)
: FHS mortgages allow home buyers to purchase a home with as little as a 5 percent down payment, and to finance all non-recurring closing costs. The current maximum loan amount in most urban markets is $151,725. In addition, borrowers are allowed to use up to 41 percent of their gross income toward paying mortgage debt well above the ratio allowed under most private programs.
Department of Veterans Affairs (VA)
: VA mortgages allow veteran or active service personnel purchase home with no down payment, up to the current maximum price of $184.000. However, there is no purchase price limitation for buyers able to make a down payment. Like the FHA program, VA borrowers can put up to 41 percent of gross income toward their mortgage debt.
Mortgage Revenue Bonds and Mortgage Credit Certificates
: Mortgages funded with these instruments typically require a minimum of 5 percent down and have interest rates that are 1.5 to 2 percentage points below conventional 30-year fixed rates. These types of loans, offered by state and local housing agencies, are available only to first-time home buyers. There generally are income and purchase price caps that vary, depending on where you plan to buy.
Private Mortgage Insurance
: Most major lenders offer privately insured mortgages, which generally require a 10 percent down payment (although some lenders offer loans with a 5 percent down payment to buyers with exceptional credit). These loans typically are not limited by maximum loan amount or purchase price limitation.
Community Home buyer Program
: Through their networks of mortgage lenders, the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) offer Community Home Buyer Program loans. These programs require a 5 percent down payment, 3 percent of which may be a gift. To further help buyers qualify, applicants may use 38 percent of their gross income . Currently, the maximum loan amount available through these programs is $203,150.
Colorado Housing and Finance Authority A new branch office of the Colorado Housing and Financing Authority (CHFA) is now open in Downtown Grand Junction in the Reed Building on Main Street. CHFA offers a number of services for home buyers including several ways to get a mortgage with little or no money down.
While lenders will be more than happy to share information about their own programs, you can save yourself a good deal of time by first selecting a professional real estate broker associate who is experienced in working with first-time buyers. Today, taking the first step toward owning your own home is much easier than in years past. An experienced estate agent is your best resource for finding innovative ways to help you come up with a down payment and qualify for financing. There's definitely no need to wait until you've saved a 20 percent down payment.
Rick Thurtle. You can contact Rick at