4 Ways to Get a Home Loan without 20% Down

get a loan without 20% downDon’t have the 20% down but want to become a homeowner in 2013? You’ve probably heard, thanks to the economy’s downturn and stricter lending guidelines, that such a desire is unlikely met. But there’s hope.  Here are 3 ways to get make your homeownership dream a reality, even if you can’t (or don’t want to) part with a giant chunk of cash up front.

Halcyon Days Are Gone, Perhaps for the Better

Pre-crash, in the heady times of 2007 real estate, anyone who had decent credit history and rental payment records could get a loan, even without really verifying income. 100% financing was not only possible, it was common. Today though, 100% financing is a bit like Sasquatch. We can find evidence of it having existed on the Internet, we can hear the folklore, but we’re unlikely to experience it firsthand.

Of course, loans needed to be stricter than that anyway. Verified income, solid credit, income and a manageable debt to savings ration all play into a person’s ability to pay a mortgage, and lenders know now to check more carefully, given the record number of people who’ve defaulted on their loans since the market’s crash.

This does not mean you can’t get a loan if you don’t have (or don’t want to pay) a 20% down payment.

Conventional Loans

You can still get a conventional loan with less than 20% down, though in general these loans are more expensive for you in the short term, and perhaps the long term as well. If you put down less than 20%, you must pay mortgage insurance (known as PMI). The more you pay down, the lower your PMI cost. You are also likely to get a better interest rate if you put 20% down. So, you need to do the math here: if you can pay 20% down, you may save money by doing so, because the extra cost of the PMI payments and interest could be more than the 20% would have been anyway by the end of the loan’s term.

Some loans will pay up to 97% of the purchase price, as long as you can front the remaining 3% from your own savings- it must be your money, not a gift. Sellers too can contribute to such loans, paying up to 3% of the closing costs.

FHA

We’ve discussed FHA loans before, the program under HUD that allows buyers to finance homes with a 3.5% down payment. Gift money is allowed here, which sets it apart from a conventional loan, and sellers can contribute up to 6% of the sale price toward closing. FHA programs also help those buyers whose credit isn’t 100% perfect, so though buyers pay mortgage insurance with these loans, they offer great opportunities to people who might otherwise not have the chance to own a home.  ZipRealty is a licensed HUD brokerage, and can help you if you’re interested in learning more.  In the meantime, the HUD website gives more information.

VA

With Veteran’s Day right behind us, it’s comforting to know that qualified vets can get up to 100% financing with no PMI. Instead, a “guarantee fee” is built into the loan as insurance for the lender. Add this advantage to the fact that sellers can pay up to 4% of the purchase price towards closing, flexible income requirements, and forgiving credit standards, and you come out with a great resource for America’s vets. For more on eligibility for on this program, check the VA’s website.

USDA/Rural Development

Not only for actual rural areas, the USDA loan program allows buyers to finance up to 102% of the appraised value of the property, and can include closing costs. Buyers will incur both a guarantee fee and monthly insurance fees added to the total loan amount, but these are reasonable costs that don’t detract from what is an otherwise amazing opportunity. The Rural Development program does have both income and property type restrictions, so check out the USDA website for more information.

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Anna Marie Erwert writes from both the renter and new buyer perspective, having (finally) achieved both statuses. She focuses on national real estate trends, specializing in the San Francisco Bay Area and Pacific Northwest. Follow Anna on Twitter: @AnnaMarieErwert