Owning your own home will always be a fundamental part of the American Dream. Home ownership creates a sense of pride and financial independence, and such a large, important purchase requires a lot of consideration as well as a considerable down payment. There are many federal and state programs that exist to assist low- and moderate-income families in securing low-rate mortgages even when they lack the otherwise requisite ability to put 20% down on the initial transaction. Consider these down payment programs if you are concerned about your ability to meet initial payment requirements.
A growing number of state and local governments offer what are called down payment assistance programs. For example, down payment grants are low- to no-interest loans available to first-time buyers or those who haven't owned a house in a few years. There are approximately 1,000 national down payment programs now in existence in the United States, and they offer a variety of down payment options to homebuyers. To find out more about state housing finance agencies in your region and how they may be of assistance, you can check the online directory at the National Council of State Housing Agencies.
The federal government is by far the largest source of down payment assistance. Here are three places where you may be able to find some help.
Within the federal government, the Federal Housing Administration (FHA) is far and away the biggest source of support for low- and moderate-income potential homebuyers. FHA-insured mortgages offer qualified first-time homebuyers more affordable terms than would be available to them through standard mortgages. Rather than requiring a 20 percent down payment, FHA mortgages could require only 3.5 percent down. Applicants with credit scores greater than 620 can qualify for these mortgages, whereas private lenders generally require scores into the 700 range.
However, there are more upfront costs associated with this program. Borrowers must pay one percent of the total cost of the loan upfront as well as a modest annual insurance premium. But even with those costs factored in, FHA-backed mortgages are generally a better option for low-income borrowers.
The Department of Housing and Urban Development (HUD) and the Department of the Treasury also administer programs to support families of limited means. HUD is accustomed to the needs of low- to-middle income families and can help them structure finances to meet their monthly mortgage payments. The Federal Housing Finance Agency, a part of HUD, offers limited mortgage relief to the unemployed. HUD also has programs to help homeowners who have made their payments, but whose mortgages are now worth more than the value of the home due to a low appraisal. The Department of the Treasury guarantees mortgage loans through Freddie Mac and Fannie Mae, which helps millions of families qualify for mortgages they might not otherwise obtain.
Many military veterans can qualify for affordable housing programs through the Department of Veterans Affairs (VA). VA loans may not require a down payment from veterans or their spouses. They may also offer free loan counseling and waive monthly mortgage insurance found in other down payment assistance programs. To qualify for these loans, you must be a veteran or the spouse of a veteran with good credit and sufficient income to cover your mortgage payments. You may also be required to pay a fee to the VA for this loan service, which is based on the nature of your service.
When you cannot afford a large down payment, you may be able to purchase private mortgage insurance or PMI. If you cannot afford to pay the required 20 percent of the home's value as a down payment, lenders may be less willing to issue the loan. PMI is insurance that protects the lender in the event you default on the loan, making lenders more likely to approve your application. PMI is typically only one percent of the loan, which is substantially smaller than a 20 percent down payment.
To learn more about down payment assistance programs, talk to a Citizens Bank home loan advisor to find one that's right for you. We have several mortgage options available, so when you're ready to purchase your home, call us at 1-888-514-2300. You can also begin your home loan application today.