Down Payment Options for ‘Soon-to-be’ Homeowners

Buying a home is a big deal and still considered one of the biggest purchases a person will make.

The more you learn about the steps you have to go through before you can call yourself a home owner, the easier it will become. One of the obstacles most people face when buying a home is coming up with the down payment.

What’s a down payment?

A down payment is the amount of cash that you pay in advance towards the price of the home. The bigger your down payment, the less money you have to borrow. For example, if the cost of the house is $200,000 and you make a down payment of $25,000, you will only need to borrow $175,000.

How much is required for your down payment?

In the mortgage industry there has always been a general rule or default down payment of 20% of the home’s purchase price. While this is still true, there are many other options out there that require less than 20%, and some that offer a 0% down payment.

How to buy with less than 20% down payment?

Many lenders and home owner programs allow less than the 20% down payment. Usually the 20% is required for the best terms, but not to get into home ownership. Here are a few options that are commonly used.

Down Payment Assistance

There are different programs administered by national, state, and local organizations that help qualified buyers with their down payment. Each program has different guidelines and eligibility requirements. Some are limited geographically and others are based on income and other factors.

· The N.C. Housing Finance Agency helped first-time home buyers and veterans who purchased homes in five select counties (Cabarrus, Cumberland, Guilford, Johnston and Mecklenburg). The program offered $15,000 for down payment and is forgiven after five years of the loan being paid at a rate of 20% per year. Do your research and find out what is being offered in your area.

· FHA (Federal Housing Administration).When using the FHA you only have to put 3.5% down and you need a minimum credit score of 580. When using the FHA loan there are many requirements in order to qualify. One requirement is that the home you purchase has to be your primary address for 12 months. You can visit www.hud.gov for more information regarding this type of loan.

· VA (Veterans Affairs). The VA loan program is home buying option for veterans. The VA partially guarantees the loan through a private lender. This makes obtaining the loan easier for applicants who normally would be denied. Usually there is no minimum credit score required and you can purchase your home, in most cases, with no down payment.

· First Time Homebuyer Programs. There are many financial institutions, such as credit unions, offer a first time homebuyer programs. These programs can benefit you in many ways. Some programs offer $0 down payment and even assist with closing cost. For example North Carolina State Employees Credit Union offers a First Time Homebuyer program to its qualified members. You can receive 100% financing at a maximum of $400,000 and also up to an additional $2,000 to help with closing cost. If this is your first home it would be wise to exercise this option.

While the down payment is one of the steps towards your home purchase, your credit score is still the first thing that lenders will look at.

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