Business Directory
Featured Business
Green Living
News Flash!
News Flash!
There's no question about it: Buying a first home is a big financial commitment. In most cases, a home is the largest single purchase an individual or family will make in a lifetime. However, because of the tax advantages afforded to homeowners, buying a home also can be one of the best financial decisions you'll ever make.
Problem is, many would-be homeowners remain renters simply because they mistakenly believe mortgage lenders require that buyers come up with 20 percent of the purchase price as a down payment. While it's true lenders feel it's less risky to work with buyers who are able to bring a substantial down payment to the table, the standard 20 percent requirement is fast becoming a relic of the past. In recent years, lenders have become more flexible in working with first-time homebuyers by creating a variety of special programs that require only a small down payment. These programs, combined with the most favorable interest rates in two decades, have encouraged growing numbers of renters to consider the tremendous benefits of home ownership.
While the list of programs offered by individual lenders is too extensive to mention in detail, here are some common programs you are likely to come across as you work with your real estate agent to purchase your first home: Federal Housing Administration (FHA): FHA mortgages allow homebuyers to purchase a home with as little as a 5% down payment, and to finance all non-recurring closing costs. The current maximum loan amount in most urban markets is $151,725. In addition, borrowers are allowed to use up to 41% of their gross income toward paying mortgage debt well above the ratio allowed under most private programs.
VA mortgages allow veteran or active service personnel purchase home with no down payment, up to the current maximum price of $184. However, there is no purchase price limitation for buyers able to make a down payment. Like the FHA program, VA borrowers can put up to 41% of gross income toward their mortgage debt.
Mortgages funded with these instruments typically require a minimum of 5 percent down and have interest rates that are 1.5 to 2% points below conventional 30-year fixed rates. These types of loans, offered by state and local housing agencies, are available only to first-time homebuyers. There generally are income and purchase price caps that vary, depending on where you plan to buy.
Most major lenders offer privately insured mortgages, which generally require a 10% down payment (although some lenders offer loans with a 5% down payment to buyers with exceptional credit). These loans typically are not limited by maximum loan amount or purchase price limitation.
Through their networks of mortgage lenders, the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) offer Community Homebuyer Program loans. These programs require a 5% down payment, 3% of which may be a gift. To further help buyers qualify, applicants may use 38% of their gross income. Currently, the maximum loan amount available through these programs is $203,150.
Clearly, there are a lot of options for first-time homebuyers. While lenders will be more than happy to share information about their own programs, you can save yourself a good deal of time by first selecting a professional real estate agent who is experienced in working with first-time buyers in the areas where you plan to buy. As agent who focuses on first-time buyers will know from experience which lenders in your area offer a low down payment program that will meet your unique needs.
Today, taking the first step toward owning your own home is easier than before. Your real estate agent is your best resource for finding innovative ways to help you come up with a down payment and qualify for financing. There's certainly no need to wait until you've saved a 20% down payment!
By: Lisa Alexander
Certified Eco Broker
