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Don’t Let the Down Payment Scare You. You Still Have a Couple of Options!

The W Home Group / Buying  / Don’t Let the Down Payment Scare You. You Still Have a Couple of Options!

Don’t Let the Down Payment Scare You. You Still Have a Couple of Options!

This Article was brought to you buy: Raúl Menéndez (raul@money.com) with money.com

The Best Personal Finance News & Information!

You’re not alone, for many the biggest deterrent to owning a home is the dreaded down payment. However, there are a couple of things you could do to avoid the payment or prepare beforehand.

First off, check if you qualify for a USDA loan, otherwise known as a rural development loan. Some eligible rural areas are surprisingly suburban – so don’t discount this loan program until you’ve checked to see if your property qualifies. It’s important to note that USDA loans do require mortgage insurance.

Another option to consider would be an FHA loan. The FHA loan is a popular option that allows buyers to put as little as 3.5% down on a new home. The great thing about FHA loans is there are lower down payment requirements and less restrictive qualifying criteria, making this a great option for all potential home-buyers. But just be aware that you’ll be required to pay a mortgage insurance premium with this loan program, regardless of your down payment.

Active duty service-members, veterans and their family members are eligible for a VA loan, which is backed by the Department of Veterans Affairs. This allows qualifying buyers to purchase a home with no down payment and little-to-no closing costs. The VA Guarantee Fee replaces the requirement for mortgage insurance, so this is an all-around great way to purchase a home for those who qualify.

If this is your first time buying a home, there are many resources available to help you with the entire process. Fortunately, there are also some programs available at both the local and national level that offer financial assistance to new homebuyers – and in some cases, to previous homeowners as well. It could be worth looking into local programs, state programs, and non-profits around you to see if you qualify.

If you’re fortunate enough to have a family member gift you money, it potentially can be used for your down payment – so long as you carefully follow the requirements set forth by your lender. You’ll need to have a paper trail showing who gifted you the money, how they gave it to you and when it was given, and that no repayment is required.

Using one of the methods above can certainly make buying a home more affordable but remember, putting less of your own money down means you have to finance even more money. You could potentially face a higher interest rate or monthly payment since lenders are taking a bigger risk.
 A low initial down payment also means it will take you longer to build some equity in your home, and it may require you to live there longer than the standard five years in order to sell for a profit – though this is only a concern if you think you’ll need to move in a few years.

There are definitely factors to consider before buying a house with little-to-no cash down. However, if you’re in a situation where it would require you to empty your savings account in order to put a full 20% down on a home, it’s probably best to go with a lower down payment option to retain some cash for unexpected expenses.

In any case, make sure you speak with a mortgage lender to discuss your home loan options and have all of your questions answered before making a decision. If you would like to read up more on the subject you can visit Money’s How Much House Can I Afford or Best Mortgage Lenders.