Category
Buying
The Top 5 Down Payment Programs
Purchasing a home is possibly the biggest expense you will face in your lifetime. That also makes it one of the most stressful expenses to undertake – especially if you’re a new homeowner.
Luckily, there are several options for down payment assistance that you can take advantage of as a new buyer. These are the top 5 programs currently on the market, conveniently compared side by side to help you make an educated decision.
FHA Loan
Who is it good for?
FHA loans are a good option if you’re a first time buyer, don’t have a huge down payment saved up, and don’t have a solid credit history. While this loan is fairly easy to acquire, it comes with mandatory insurance fees, and can prevent potential sellers from taking you seriously.
1. Eligibility: FICO over 580
2. Minimum Down Payment: 3.5%
3. Loan Limit: Limited to Fannie Mae/Freddie Mac confirming loans, current limit for most areas is around $510,000.
4. Chance of Buying a Home: Many sellers don’t like dealing with FHA loans, as closing isn’t guaranteed.
5. Funding/Underwriting Fee: Around 1%, along with an underwriting fee between $350 and $1,000.
6. Upfront Mortgage Insurance Fees: Typically, 1.75% of the loan.
7. Mortgage Payments: Since the down payment is frequently minimal here, mortgage payments stay higher due to a high loan to value ratio (around 97.5%, if providing minimum down payment).
8. Additional Monthly Fees: When borrowing from FHA, you will not only need to pay the upfront mortgage insurance fees, but also cover an annual premium. This is generally .45% to 1.05% of the loan amount. In many cases, this fee can be dropped after you have paid off 20% of the loan, but in some cases, must remain place for the duration of the loan.
9. Portion of Appreciation: You keep 100% of your home’s appreciation value.
10. Portion of Loss on Home: You stand to lose 100% of your home’s depreciation value.
VA Loan
Who is it good for?
VA loans are built specifically for veterans, service members, and spouses of deceased veterans. They are great if you have military service background and need help getting back on your feet – and don’t have a lot saved up for a down payment.
1. Eligibility: Veteran or service member.
2. Minimum Down Payment: 0%
3. Loan Limit: Limited to Fannie Mae/Freddie Mac confirming loans, current limit for most areas is around $510,000.
4. Chance of Buying a Home: Many sellers don’t like dealing with VA loans, as closing isn’t always guaranteed.
5. Funding/Underwriting Fee: Between 1.4% and 2.4% depending on down payment.
6. Upfront Mortgage Insurance Fees: None.
7. Mortgage Payments: Since the down payment is frequently minimal here, mortgage payments stay higher due to a high loan to value ratio (can be 100%, with 0% minimum down payment).
8. Additional Monthly Fees: None.
9. Portion of Appreciation: You keep 100% of your home’s appreciation value.
10. Portion of Loss on Home: You stand to lose 100% of your home’s depreciation value.
USDA Loan
Who is it good for?
USDA loans are a good option for low-income families who are looking for housing in more rural areas. They can be difficult to apply for and are entirely dependent on your income and come with fees.
1. Eligibility: USDA loan eligibility differs based on location and income. Generally, they are for low-income buyers and only apply to rural areas.
2. Minimum Down Payment: 0%
3. Loan Limit: Loan limits for USDA loans depend on your income and location. Use their calculator for an estimate.
4. Chance of Buying a Home: Many sellers don’t like dealing with USDA, as closing isn’t always guaranteed.
5. Funding/Underwriting Fee: 1%, which is able to be financed.
6. Upfront Mortgage Insurance Fees: 1% upfront.
7. Mortgage Payments: Since the down payment is frequently minimal here, mortgage payments stay higher due to a high loan to value ratio (can be 100%, with 0% minimum down payment).
8. Additional Monthly Fees: About .35% of the loan’s balance for the remainder of the loan, paid monthly. This fee gets smaller every year as you pay off more of the loan.
9. Portion of Appreciation: You keep 100% of your home’s appreciation value.
10. Portion of Loss on Home: You stand to lose 100% of your home’s depreciation value.
HOMELLC
Who is it good for?
HomeLLC is a great option for first-time buyers who want to get out of the rental cycle but can’t afford a hefty down payment. Because this is not a loan, but an investment, there are no extra fees to worry about, and sellers are likely to accept your offer.
1. Eligibility: All U.S. citizens and permanent residents.
2. Minimum Down Payment: 2%
3. Loan Limit: Maximum home price of $2.5 million.
4. Chance of Buying a Home: Sellers are likely to accept offers, since the closing process is seamless and guaranteed.
5. Funding/Underwriting Fee: 0%
6. Upfront Mortgage Insurance Fees: None.
7. Mortgage Payments: Since the down payment is generally 20% here (with HomeLLC’s investment), mortgage payments stay low due to a low LTV ratio (80%).
8. Additional Monthly Fees: None.
9. Portion of Appreciation: You share your home’s appreciation value with HomeLLC.
10. Portion of Loss on Home: You share any losses with HomeLLC.
ZeroDown
Who is it good for?
ZeroDown is a good option for financially stable individuals who live in areas with overpriced housing. Their model allows you to pay rent to them until you’re ready to purchase your home.
1. Eligibility: Only available in select cities.
2. Minimum Down Payment: 0%
3. Loan Limit: Max home price of $1.5 million.
4. Chance of Buying a Home: Very likely, since ZeroDown purchases the home for you and then gives you the option to buy it from them with no competitors.
5. Funding/Underwriting Fee: 0%
6. Upfront Mortgage Insurance Fees: One-time fee of $10,000.
7. Mortgage Payments: All payments go directly to ZeroDown. Payments are likely to be higher at first, due to the fact that they are charging rent – not collecting mortgage. If you should decide to buy the property, monthly payments may go down depending on your down payment.
8. Additional Monthly Fees: None.
9. Portion of Appreciation: 0% – unless you choose to buy the home from them (their selling price will increase 2.5% annually). Once you own the home, 100%.
10. Portion of Loss on Home: If you decide to purchase the home from ZeroDown, you will incur 100% of the losses, in addition to the money already spent in monthly payments to ZeroDown and the increased housing price (selling price increases 2.5% every year you choose to continue renting). If you continue renting and move on – you will incur 0% of the loss on the depreciation value of the home.
No matter how you choose to finance your first (or second, or third…) home, there are options out there to help make this major life decision more manageable. Home ownership is a milestone everyone should get to celebrate – with a little help from a credible lender, you can take the plunge and make your purchase.
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