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How to Buy a Home with Little or No Money Down

06/22/2010
After what happened in the housing market, you're probably wondering whether it's still possible to buy a home with no money down or a small down payment. And the surprising answer is yes.

Several federal agencies currently off no and low down payment mortgage loans to borrowers who qualify. Several insurers of private mortgages also offer lower requirements for down payments and lowest interest rates.

If you don't have money to put towards a down payment, know that both the Department of Agriculture and the Department of Veterans Affairs guarantee no down payment home loans. You can also find zero down payment mortgages at the nation's largest credit union.

If you're a former or active member of the military, you might qualify for a no-down payment purchase mortgage through a VA home loan program. You'll need to work with a VA-approved private lender to originate the loan since the VA just guarantees loans. You won't be required to pay mortgage insurance

However, you will have to pay a funding fee. But don't worry; you can add the fee amount to the principal balance. The fee ranges between 2.15 and 3.3 percent depending on where you served and whether or not you've already had a VA loan.

If you qualify you may be able to obtain 100 percent financing on a loan up to $650,000 for the purchase of a primary residence through the newly restored Navy Federal Credit Union program. Only military personnel, certain civilian employees working for the Department of Defense and the military, and members of their families are eligible.

This program is similar to that offered through the VA. The key difference is the funding fee which at 1.75 percent is less than the VA requires.
Believe it or not, Rural Development loans offered through the USDA can be used to purchase more than farmland. Currently lacking funding due to its popularity, many expect Congress to provide additional program funding before the summer buying season heats up.

Banks originate USDA mortgages and don't require mortgage insurance. They do require a guarantee fee equal to two percent, and borrowers have the option of rolling the fee into the loan.

If you don't qualify for any of these zero down payment loans, take a look at FHA home loans that require just 3.5 percent down if you qualify. Nearly a third of today's homebuyers have home mortgages insured by the FHA.

Note that insurance fund losses have forced higher rates on FHA loans including an upfront premium equal to 2.25 percent of the loan amount. Borrowers who put down the minimum also have to pay an annual premium equal to $550 for every $100,000 that they borrowed, or 0.55 percent of the amount of the mortgage.

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