For those buying their second, third or retirement home, many times the funds needed for a down payment and closing costs come from the proceeds of a sale from the previous home. As homeowner equity grows over time, that equity is converted to cash at settlement and then part or all of it is transferred to the purchase of the subsequent home. First time home buyers, however, don’t have that luxury and must come up with the initial funds on their own. When buying a first home in 2020 however, there are some excellent choices for first-time buyers that don’t require a hefty down payment. Some that don’t require a down payment at all.
What are the best mortgage options for first time home buyers today? The most popular loan choice is the FHA mortgage which only asks for a down payment of 3.5 percent of the sales price. Anyone can apply for an FHA loan and there are no limitations on who is eligible or where the property must be located. The FHA loan also comes with a guarantee to the lender should the loan ever go into default. This guarantee allows lenders to be a bit more flexible when it comes time for approval. FHA loans also provide an array of financing options from fixed rate to variable and amortization periods from 10 to 30 years.
If the first time buyers are eligible for a VA loan and want a low-cost mortgage, the VA loan is hard to beat. The VA loan programs does not require a down payment and also restricts the types of closing costs the borrowers can pay. To determine if someone is eligible, the lender will submit a request directly to the Department of Veteran’s Affairs for a copy of the veteran’s Certificate of Eligibility. It is only with this certificate that the lender can determine whether or not the applicant can apply for a VA loan. VA mortgages also carry a guarantee to the lender. For those with eligibility and needing to come to the settlement table with as little cash as possible, the VA loan is hard to beat.
No VA loan eligibility? First time home buyers can opt for another 100% program like the USDA home loan program. This 30- year fixed financing option does not require a down payment and provides a loan guarantee to the mortgage company. USDA guidelines limit the amount of household income to 115 percent of the median income for the area and the property must be located in an area previously approved by the USDA. Please call us today to learn more about all the USDA Rural Housing loan requirements.
So far we have three government-backed loans that have a low down payment requirement such as the FHA loan or no down payment requirement for a VA or USDA loan. But there are also closing costs to consider as every mortgage transaction will have both lender and non-lender fees that need to be settled at the closing table.
For those seeking assistance with a down payment and some help with closing costs, they should speak with their lender about bonds and grants. A home loan bond program for 2019 is established by a government agency and administered by an approved mortgage lender. Applicants can apply for down payment assistance and receive a limited amount of funds needed for a down payment and closing costs. Amounts and qualifying guidelines will vary as each local, county or state government agency issues its own requirements but there are a few things in common.
Bond programs and grants are designed to help lower to middle-income borrowers buy and finance a home. This means borrower income will be verified to make sure household income does not exceed a certain level. Bond programs can also restrict where the property can be located to help redevelop an underserved market.
When a bond program is accessed for a down payment and closing costs, typically there is no repayment required while the borrowers occupy the property and many waive repayment entirely as long as the borrowers live in the property for at least three years. Otherwise, the entire amount of down payment assistance will be due when the property is either sold or otherwise no longer occupied by the borrowers. Grants are another source for down payment assistance but as the name implies a grant does not have to be paid back at all.
When you combine down payment assistance programs with any of these three government-backed mortgage programs, borrowers get a competitive mortgage program with as little cash to close as possible. Contact us today by submitting the Quick Request Form at top or just call (904) 810-2293