When lenders initially review a loan application from a first time home buyer, one of the more important items to check off is making sure there are enough funds for a down payment and closing costs. As loan limits rise in 2019 so too will the amount of down payment needed because the down payment is expressed as a percentage of the sales price.
First-time buyers may have heard a prevailing myth that someone needs a 20 percent down payment in order to qualify. Yet there are loan programs that do not require a hefty down payment and even some loan programs that do not require a down payment at all.
For instance, consider the VA home loan program. This loan is available for veterans, active duty with more than 180 days of service, National Guard and Armed Forces Reserve members with at least six years of service and un-remarried surviving spouses of those who died while serving or as a direct result of a service-related injury. The VA loan requires no down payment at all which goes a long way to saving first-time buyers a significant amount of cash to close. The VA loan also prohibits buyers from paying certain types of closing costs, further reducing the amount of cash needed to close
USDA loans are another breed of no down payment loans. Offered as a 30 year fixed rate program, the USDA loan is designed to finance those who want to buy a property in a rural area, away from the city. The USDA establishes where the property can be located in order to be eligible for this zero down loan and all the buyers need to do is find a property and then check with their loan officer to see if it is located in an eligible zone. But again
FHA loans are extremely popular with
Yet all three of these low and
Bond money usually comes in the form of cash provided at the settlement table and the entity providing the assistance then places a lien on the property. Such programs subordinate to the existing first lien whether it’s a VA, USDA or FHA loan. Further, there are no payments that need to be paid while the borrowers occupy the property. For most bond programs, as long as the borrowers occupy the home for at least three years, repayment is waived.
There are other bond programs that finance the entire transaction and designed for low to moderate income borrowers. These programs also ask the borrowers be first time buyers or otherwise have not owned a home within the previous three years.
Government agencies issue bonds to investors who are guaranteed a specific rate of return at a given point. These funds are then used to finance properties for
Grants are another source of funds to close. Again, terms for housing grants will vary based upon the agency issuing the funds but the important thing to note with a housing grant is there is no repayment. Grants are issued specifically to first-time buyers and used to assist with a down payment and closing costs. For example, consider a couple who wants to buy their first home, but they must first come up with the 3.5 percent down payment and closing costs needed for an FHA loan. For a $100,000 purchase, that’s $3,500 for the down payment and perhaps another $3,000 for closing costs for a total of $6,500.
A grant can be issued to provide the $6,500 and then obtain a mortgage that accepts grants as a source for 100 percent of the needed funds. Note, conventional mortgages and other may ask for a minimum investment from the borrowers, even though a grant is available to cover all the needed cash to close.
Down payment assistance of all types can vary based upon location, even from county to county and state to state. There are no universal guidelines, so you’ll need to do some homework on your end and specifically request from your loan officer that you’d like to apply for down payment assistance. For example, in
If you or someone you know is thinking about buying a home but are not sure about how to come up with the cash needed to close, downpayment assistance in the form of bond money or grants can often take care of most if not all of the necessary cash to close. Getting prepared upfront for these programs means the application and approval process will be a smooth one.
Call Coast to Coast at the number above to learn more about any of the programs mentioned.