Buying a home is one of the biggest financial decisions a family will ever make. Many families have trouble saving up enough money for the deposit, or down payment on a home. Some save money for years trying to come up with the money for a substantial down payment. There are several different types of low deposit mortgage options available to make purchasing a home more affordable.
Home mortgage loans through the Federal Housing Administration (FHA) are available for very little out-of-pocket expense for those who qualify. The home buyer should first find a FHA-approved lender and fill out an application. If approved, the home buyer may be able to get a low-deposit, low-interest loan. One of the biggest factors is qualifying for an FHA loan is income to debt ratio. The applicant can spend no more than 31 percent of his gross income on a monthly mortgage note. FHA loans are available at a 3.5 percent to 10 percent down payment, depending upon credit score and other determining factors. The down payment can be a gift from a government agency, a family member, or gained by some other means. With FHA loans, the borrower is required to buy FHA mortgage insurance, which generally is 1.5 percent of the original loan amount plus an additional .5 percent for each year of the loan.
Rural Development Housing
This program is backed by the United States Department of Agriculture. This program has geographical and income limitations but is not only for farmland. The property must be located in an approved rural area. The loan program is intended for first-time home buyers, although there are some exceptions to this rule. According to where the buyer lives, there are different requirements for how much income the applicant can make monthly. However, these loans are available in general only to low-income families. These home mortgage loans can be obtained at low-deposit, low-interest terms.
Qualified veterans or active-duty services members can qualify for a low-down payment or even no-down payment mortgage loan. These loans can be obtained through private lenders, and the Veterans Administration will guarantee the loan. There is a funding fee involved, generally around 2.15 to 3 percent, but no mortgage insurance requirement. Veterans who were not dishonorably discharged and have an acceptable credit score should have no trouble qualifying for a VA home mortgage loan.
Navy Federal Credit Union
The Navy Federal Credit Union offers zero-down home mortgage loans to qualifying members. Membership to the credit union is restricted to member of the military civilian military employees, or their family members. These loans are available at very good interest rates and the funding fee is only 1.75 percent. Property purchased cannot exceed $650,000.
HomePath Mortgages are a special type of mortgage loan designed to try and help sell Fannie Mae properties. These properties are usually sold at below-market prices. The loans can be acquired with a low 3 percent down payment, no mortgage insurance requirements nor any appraisal requirements. Flexible payment options are available: fixed-rate loans, adjustable-rate loans, and interest-only loans. Only buyers purchasing Fannie Mae properties are eligible for this home mortgage loan program.
Purchasing PMI Insurance
Still another option for lowering the down-payment requirement is through purchasing private mortgage insurance (PMI). The down payment could be lowered to as little as 3% through purchasing PMI insurance. Lenders are able to offer these loans with a lower down payment because the insurance protects them in case the home buyer defaults on the mortgage loan payments. Once the buyer achieves 20 percent equity in the home, he may drop the PMI insurance.
Qualifications for low deposit mortgages
The process for qualifying for a low deposit mortgage is much the same as qualifying for any other type of mortgage loan. The mortgage lender will review the applicant’s income, expenses, credit history, along with his ability to meet the monthly mortgage payments. While the credit requirements for some low-deposit mortgages may be less than those of traditional mortgages, applicants with a credit score below 600 may find it hard to be approved for a home mortgage loan. Even though the approval process for home buyers with poor credit may be harder, it is still possible in some cases to be approved for a home mortgage loan.
Even if buyers find low deposit mortgage options such as those listed above, they still need to make sure that they will be able to make the monthly mortgage notes, or they could risk falling into foreclosure. Buying a home with a lower down payment will mean that it will take longer to pay back the loan, perhaps as much as 30 years. Even so, this is an affordable option for many low-income families who could not otherwise afford to purchase a home.