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Home Loan Options for Borrowers with Low Down Payments


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TERMINOLOGY

It can be hard to come up with a lot of cash for a down payment, especially for your first home, but there are some programs that allow low down payments. By taking some time and learning about the options available to you, you can find a loan that fits your personal needs.

VA Loan

If you are a veteran, then you are in luck. VA (Veterans Administration) loans require no money down if the loan is less than $417,000. If you are taking out a jumbo loan at more than $417,000, then you are paying a down payment only on the money above the $417,000 mark.

FHA Loan

Fair Housing Administration loans are a great mortgage product that requires little money down. Only 3% of the mortgage amount is necessary at closing. They are also available for those with less-than-strong credit. They are becoming increasingly popular loans because of their low money down requirement.

Piggy Back Loans

A piggy back loan is a second mortgage that closes at the same time as the first. The first mortgage will be 80 percent, so you won't have to pay for private mortgage insurance. The second mortgage will be 10 or 15 percent. You pay the remainder 10 or 5 percent that is left. The downside is the second mortgage is going to have a higher rate than the first. It also is commonly a balloon, which means a large lump sum is due at the end of the loan term.

Conventional Loans

A conventional 30-year fixed loan from the bank is not out of the question with little cash for a down payment. You will need to pay for private mortgage insurance, though. This is insurance that protects the lender in case of foreclosure. The risk to the lender is much greater if there is not a lot of money down, since there is little equity. Someone who puts down 20 percent gives the lender instant equity and is less of a risk.

Down Payment Assistance

If you need money for a down payment, you may be able to get some help. Gifts from family can be used in most cases. As long as it is not a loan, and the family member provides a gift letter to the lender, then these can be used. Also, some employers, especially government agencies, offer down payment assistance. They will either offer a standard payment or a matching program where they match dollar for dollar what you contribute. Also, check with your local government about first-time home buyer grant programs. There is money available if you are low income or are buying a home in a neighborhood stabilization area. And lastly, consider withdrawing from your Roth IRA. You can take money out penalty free if you are a first-time home buyer.