But even though lenders will cover most of the purchasing price of a home they generally expect something from you as evidence of your financial capabilities.
The thinking has traditionally been that if you can’t afford a decent down payment then you can’t be trusted with a home.
But times are changing and more options are becoming available to people who can’t afford a traditional down payment. If your ability to save is limited or practically nonexistent but you still feel confident you can make the necessary payments then there are options for you.
We are going to look at some of the options and considerations you should look at if you’re serious about making your dreams of homeownership a reality.
Where to Get These Loans From
While lenders can be helpful they aren’t charities, they want to see a return on their investment. That’s why they like down payments, because every dollar you put up in the beginning is a dollar that the lender doesn’t have to worry about.
As you look at lenders who accept smaller down payments you need to ask why. In general the two sources for these loans are the government and private lenders. Both have their own reasons and their own pros and cons.
The most obvious choice in this situation is the government. Government loans aren’t charity but they are the closest you’re likely to get get.
The three main kinds of government loans for our purposes are Veterans Affairs, US Department of Agriculture Loans and Federal Housing Administration loans.
All of these loans represent the government’s effort to try and improve the economy and its citizens’ quality of life through home ownership. VA Loans are offered to individuals who are in the military or have been in the past. USDA loans are available for those looking to buy a home in designated rural areas.
Finally, FHA loans represent the government trying to encourage home ownership all across the board.
If you are looking for buying a home without making a down payment then your only real choices are VA and USDA loans. It’s important to note that while these loans may not require the normal down payments they include all sorts of requirements that you wouldn’t run into if you could make the usual down payment.
These loans aren’t available to just anyone so carefully examine the requirements before jumping to any conclusions.
If you’re looking for low-down payment loans then your best option is looking for a loan that is offered or backed by a government organization, but if you aren’t eligible for any of the loans mentioned you can consider private options.
However, it should be noted that these loans are less common and more dangerous than government alternatives.
As mentioned low-down payment loans are a risky thing for banks and other lenders to offer. For a while after the real estate market bust of 2008 banks wouldn’t even offer these loans.
Now they are starting to but they are being more cautious, demanding other forms of compensation for their risks. The lower your down payment is the higher your interest rates are likely to be. So if you get offered a low-down payment loan you need to weigh the short term rewards with the long term risks.
Choosing The Right Mortgage with the Right Down Payment
While there is a lot to be said for homeownership the most important thing you need to be considering right now is your future. This kind of major financial decision requires long term thinking.
Low or no-down payment mortgages can be great but they can also get people into trouble.
The more you can save up the more options you are going to have. If you can save up a 10-20% down payment then you’ll be able to choose from loans that have much more appealing interest rates.
Spending a few years saving up could mean decades of savings, so take the time to consider different loans, your finances and market trends before making a hasty decision.
With that said sometimes you just need to get into a home as soon as possible. If the market is right and you can afford the payments a low or no-down payment mortgage can help you strike while the iron is hot.
Mortgage Capital Associates (MCA)
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Mortgage Capital Associates has been in the mortgage loan business since 1982 serving customers in 31 states and our mission has been to fulfill the home buyer’s dreams of ownership.
With 30+ years of mortgage lending experience, our reputation is based on fast delivery of industry best rates and closing your loans without any surprises. Our Mortgage Loan Consultants are extremely knowledgeable and able to tailor a mortgage to meet the individual needs of our customers. They use the latest comparative analysis software to research and compare a wide variety of loan programs and best option to meet your individual need and financial goals. Our state of the art loan software streamlines the processing of your loan, ensuring quick approvals and fast closings for you.
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