Options for Low Mortgage Down Payments

Even with the present condition of the housing market, it is still possible to obtain a mortgage with a low down payment requirement if you know how to go about exploring the available options.

Conventional Loans

Most conventional loans require a 20 percent down payment, but many lenders now offer conventional loans that require lower down payments -- sometimes as low as 5 percent.  Regardless of the loan type, if the down payment amount is lower than 20 percent, lenders usually require the homebuyer to purchase PMI (Private Mortgage Insurance).  PMI is essentially an insurance payment made to the lender as a means to set off any losses the lender may incur in the event that the monthly mortgage payments are not able to be satisfied.  Many lenders will allow a down payment of as little as 5% if PMI is paid.

FHA Loan

The FHA (Federal Housing Administration) is currently offering mortgages with low down payments to qualified applicants.  FHA loans generally require only 3.5 percent down payment from those who qualify, which can keep a lot of money to be used for other things in the pocket of the buyer.  In addition, the interest rates are currently well below 5 percent, which is extremely low by historical standards.   Of course, as mentioned above, PMI is usually required if the down payment is less than 20 percent.

VA Loan

VA (Veterans and Active Military) Loans are special home loans that are given only to those who are serving or have served in the Armed Forces.  For those who qualify, the VA Loan is an even more attractive loan, because it requires little or no money down and may even carry a lower interest rate than traditional home loans, resulting in a lower monthly payment.  In addition, the lending standards for a VA loan are generally more lax, making it easier to qualify for the loan.  For example, retired or active duty servicemen and women may qualify for VA loans with credit scores as low as 580.

Paying More Interest

As long you agree to a higher interest rate, some lenders will allow you exchange the higher interest rate for lower fees, which results in a smaller down payment.  Of course, this means you will pay more interest over the life of the loan, but it could make the difference between your buying the home and having to wait because you are unable to meet the down payment requirement.

Qualifying for a Low Down Payment

In order to be considered for a low down payment loan, you generally need to have:

  • Sufficient income to cover the monthly mortgage payment(s)
  • Sufficient cash available to cover the down payment, closing costs, and related expenses
  • A credit score and history that indicates your willingness to pay
  • A current appraisal which shows the property value is equal to or greater than the purchase price
  • In some instances, a cash reserve equivalent to two monthly mortgage payments.

Fair Lending Is Required by Law

The Equal Credit Opportunity Act prohibits lenders from discriminating against credit applicants in any aspect of a credit transaction on the basis of race, color, religion, national origin, sex, marital status, age, whether all or part of the applicant’s income comes from a public assistance program, or whether the applicant has in good faith exercised a right under the Consumer Credit Protection Act.

The Fair Housing Act prohibits discrimination in residential real estate transactions on the basis of race, color, religion, sex, handicap, familial status, or national origin.

Under these laws, a consumer may not be refused a loan based on these characteristics nor be charged more for a loan or offered less-favorable terms based on such characteristics. 25 2012-06-15 22:40:41 Paying Bills Down Almost everyone has bills to pay every month.  There are credit card bills, utility bills, car payments, mortgage payments, etc.  While it is very important that you pay at least the required minimum on all bills as they become due, break the habit of paying only the minimum required each month.  Paying the minimum is exactly what the banks want you to do.  The longer you take to repay the charges, the more you pay to them in interest, and the less cash you have in your pocket.  You can reduce the total amount of interest that you pay if you "bite the bullet".  Pay more than the minimum, apply the additional payment to the bill with the highest interest rate, and you can begin to pay down your bills and work toward getting them paid off.

Now that you understand the need to make more than the minimum payment each month, here is one approach you can take to pay down debt:

  1. Look over your loans and credit cards and see which account has the highest interest rate.  This is the account you want to pay down first.
  2. Make the minimum required payment on all accounts except the one which has the highest interest rate.  Pay as much as you can toward this specific account.  You'll find the next month's bill is slightly less than usual, thanks to the extra amount you paid toward the bill.
  3. Repeat this process every month until you have finished paying off the highest interest rate account.  Then move on to the remaining account with the highest interest rate and begin placing all of your extra money toward this bill.  You can really put a dent in your total credit card debt by using this approach.

Planning to make additional payments is easy.  Figuring out where the extra money to make the additional payments is going to come from is the hard part.  There are plenty of ways you can get your hands on the extra money you need.  Here are just a few simple and relatively painless suggestions for saving the extra money you will need:

  1. Skip eating out at lunch, and bring lunch from home instead.  This can easily save between $100 and $200 a month.
  2. Eat one or two fewer dinners in restaurants each week.  This can easily save an additional $100 to $200 a month.
  3. When you do eat out, eliminate appetizers and desserts.  This can save $10 or more each meal.  You can do the math to calculate your monthly savings.
  4. At the grocery store, purchase store brand items.  They are generally of the same quality and taste as brand name items, but considerably less expensive.
  5. Avoid "impulse" buys.  Ask yourself, "Do I really need this?"
  6. We all have "luxuries" and you know what yours are – cut way down on them!
  7. In general, stop spending money you don't need to spend.

Make a few sacrifices, and you will find the extra dollars needed to dramatically increase the payments on your debt.  Those increased payments will save you hundreds, if not thousands of dollars, in interest payments.  Is it fun to make those sacrifices?  Of course not, but getting out of debt and being a lot more in control of your personal finances certainly is.