The main reason cited by non-homeowners as to why they currently do not own a house is because they cannot afford to buy one, as revealed in the 2018 NAR Aspiring Home Buyers Profile . The results are highest at 56 percent in the last quarter of 2017. Also, many home buyers have already indicated that the most difficult step in the home buying process is saving for a down payment.
Likewise, many of these potential homeowners believe that you need a daunting 20 percent down payment to be able to buy your first home, so they already deem themselves ineligible without even trying. But the silver lining is that 61 percent of first-time buyers who purchased a home through a mortgage from December 2016 to November 2017 actually made a zero to 6 percent down payment, as reported in the NAR November 2017 Realtors Confidence Index .
And yet, coming up with a 6 percent down payment can still prove challenging for many — especially for low to medium-income earners, new graduates who are still paying student loans, single parents, or those who are still recovering from credit card debt. To help you kick-start your home buying process, here's a list of grants and loan assistance programs you could check out to help you afford a mortgage to get your dream home.
An FHA loan is a mortgage insured by the Federal Housing Administration (FHA), an agency within the U.S. Department of Housing and Urban Development (HUD). Their most popular home loan is the 203(b) FHA Fixed Rate Mortgage Loan Program, especially for first-time home buyers. It keeps a buyer's down payment to a minimum and could also reduce the closing costs.
FHA loans could greatly benefit those who want a home but have little or no money saved for a down payment; including students who just graduated from college, newly married couples, and also those who have had credit problems in the past because of foreclosure or bankruptcy.
Pros:
Those who have a credit score of 580 or higher can get a mortgage with a down payment of as low as 3.5 percent. For those with credit scores lower than 580, they can still qualify for an FHA mortgage, but the down payment will be at least 10 percent of the home's purchase amount.
Borrowers can use many sources of cash to make a down payment, including from their own savings, a gift from a family member, or a grant from a down payment assistance program. The FHA has a list of these grants to help you search for the best assistance program that suits your situation.
In an FHA loan, home sellers, builders and lenders could offer to pay some of the borrower's closing costs, such as an appraisal, credit report, or title expenses, as an incentive.
Cons:
FHA loans require a borrower to pay mortgage insurance, unlike conventional loans. This backing protects private lenders from delinquent borrowers. Despite the mortgage insurance requirement, it remains one of the most popular mortgage options that have a low down payment.
Because the FHA is only an insurer, borrowers need to get their loan through an FHA-approved lender. However, these lenders don't offer the same interest rate and costs even on the same FHA loan. So it’s important to shop around for an FHA-approved lender that offers the best interest rate to help you.
The home buyer assistance programs offered by the U.S. Department of Agriculture (USDA) help borrowers or families with low and moderate incomes obtain a decent and safe housing in rural areas.
Pros:
If you qualify for a USDA loan, you will receive 100 percent financing with no down payment necessary. The loan payments are also fixed because the USDA offers mortgage guarantees to lenders.
These loans aren't confined to farmland, so there’s no need for a borrower to run or buy a farm to be eligible. However, the properties must be in areas with a population below 35,000, which are mainly rural areas. But there are also some suburban areas that can qualify for the program.
Cons:
The program has income limitations, which vary per region according to the average median income of the area.
Veterans, active-duty service personnel, and select Reservists or National Guard members, as well as spouses of military members who died while on active duty, are among those who can qualify for VA loans offered by the U.S. Department of Veterans Affairs.
Pros:
VA loans come with competitive interest rates and require no down payment, which is a huge plus. These loans are also more lenient when it comes to bankruptcy and foreclosure than other loan products.
