There are many different options for mortgages available but some people think that you need 20% down – or more! While there have been many changes over the last couple of years, there are still some great programs available for those that do not have 20% down.
The most common program that many use is FHA. It is a 30 yr mortgage and you only need 3.5% down. The seller can help with up to 6% in seller paid closing costs. This is a terrific program for first time homebuyers that do not have a lot of cash. If you have had a foreclosure or bankruptcy in the past, you need to wait 2 years for a bankruptcy and three years for a foreclosure. There are many people using this program if they had a foreclosure in the past few years.
For those that have VA eligibiltiy, a VA mortgage is a terrific way to buy. It is still 0 down and there is not a monthly mortgage insurance payment. There is a VA funding fee that is added to your mortgage, the amount varies based on your military service and if you have used your VA benefits before.
USDA is another zero down program for those buying outside of the metro areas. This program allows you to buy a home and the seller can help pay for closing costs. There is a guarantee fee of 2% that is added to your mortgage. There is also a monthly guarantee fee of .40%, much lower than FHA's monthly MIP fee of 1.35% (as of April 1, 2013).
Fannie Mae also has a conventional program that allows for 3% down. You can not own another home, you are allowed to use gift money. Your credit score requirements are higher than for FHA/VA loans but it is a good option. There is monthly mortgage insurance but there is not an upfront MI that is added to your mortgage.
If you have a good credit score, especially if it is over 740 and you have the ability to put 5% down, conventional loans are a great way to buy. The monthly mortgage insurance is much lower than FHA which helps with the monthly payment. You can also eliminate mortgage insurance sooner than with FHA, also as of June 2013, FHA will not allow you to drop mortgage insurance regardless of your equity, so that is another reason to look at conventional loans.
There are also programs that help with down payment assistance. MN Housing has a great program that allows for between $3000 – 10,000 depending on your situation. Dakota County has down payment assistance available. There are other programs in different cities that can also help.
Check with your loan officer and see what is the best program for you!