Down Payment Crisis: 7 Strategies for a Low Down Payment Mortgage Loan

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Down Payment Crisis: 7 Strategies for a Low Down Payment Mortgage Loan

downpayment“A bank is a place that will lend you money if you can prove that you don’t need it.”

~ Bob Hope

Bob Hope is absolutely right when it comes to loan approval. For a majority of people, buying a house is the largest investment that they are going to make. However, a 20% down payment discourages first time homeowners and young couples who are planning to settle down.

Top 7 tips for mortgages with lower down payments

Fannie Mae and Freddie Mac offer conforming mortgage loans with 5 percent or 10 percent down payment. These are not the only agencies with lower down payment requirements.

  1. Avail a loan with 3% down payment: In 2015, Fannie Mae and Freddie Mac announced loans that are available with 3 percent down payment and private mortgage insurance. The only requirement is that one of the homebuyers should be a first-time buyer.
  2. Choose a mortgage from Federal Housing Administration (FHA): FHA is a popular choice among struggling borrowers and ones with top-notch credit scores looking for lower down payments. For qualifying for an FHA loan, your credit score should be higher than 580. You need to pay mortgage insurance premium and a monthly premium upfront.
  3. Look out for state or local mortgage programs: The state and local housing associations run programs that allow lower-income families to avail a mortgage with minimum down payment.
  4. Rural development loans: If you live in a rural or sub-urban area, you can approach the U.S. Department of Agriculture for a mortgage with zero down payments. You need to satisfy the eligibility criteria of the agency and pay upfront guarantee and annual fee for the loan.
  5. Ask your homeowner for a lease-option contract: Another option to buy a house with lower down payment is to sign a lease-option contract with your homeowner. The owner may require you to make an upfront payment, which may lapse if you do not buy the property.
  6. Find seller-financed property: You can lookout for seller financing, which might enable you for flexible payment terms. You do not need to fulfill stringent credit requirements as with the major lenders. However, make sure to get a contract from an expert real estate attorney to protect your rights.
  7. Borrow from Solo 401k retirement plan: If you happen to have a Solo 401k retirement plan, you can borrow up to 50% of the account balance with a maximum borrowing limit of $50,000. You can repay the loan in 5 years with a lower interest rate and you need to make a minimum of one quarterly payment.
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