Are there loan programs available for buyers with less than 20% to put down?

While this blog may be a little dry, I think it is important to buyers in this market to know what financing options are available to them.  There are several loan programs available to buyers currently who do not have a full 20% to put down.  Make sure to discuss all options and all of their pros and cons with your lender before making a decision to buy a home with less that 20% down.  Please remember that that these are very general guidelines and do not take individual income or debt-to-income into consideration.  You need to speak with a lender to get pre-qualified to buy a home.  These loan options are some good places to start when speaking with your lender!  Ask your REALTOR for a lender referral!

FHA Financing: One of the most popular programs available currently is an FHA loan.  This loan, as long as your credit score is within a certain range, allows for a buyer to put 3.5% down.  The buyer will also be required to pay mortgage insurance for a minimum of 5 years.  You will pay beyond 5 years until you can reach a 78% Loan-To-Value ratio on the property.  An FHA loan is available for a property up to $365,000.00 in the metro and surrounding areas.

Homepath & Homesteps:  These programs are offered by Fannie Mae and Freddie Mac respectively.  These types of loans are only available on properties that are owned by Fannie Mae and Freddie Mac and not all lenders are able to underwrite them.  Be sure to talk to your agent if you are considering a Homepath/Homesteps property.  This loan only requires 3% down and does not require mortgage insurance. 

CDMP (Community Development Mortgage Program): This program is offered exclusively by Edina Realty Mortgage and Wells Fargo Bank.  Other lenders may have similar programs available.  Don’t hesitate to ask.  This program requires only 2% down and does not require you to pay Mortgage Insurance.  There are income limits along with credit requirements.

Conventional financing:  Conventional Financing is not just for those that have 20% to put down.  You can actually put as little as 5% down with a certain credit score and still be considered conventional.  Please note, you will be required to pay mortgage insurance with conventional financing if you put less than 20% down.

VA:  This loan is great for eligible veterans.  This loan product currently requires 0% down and does not require mortgage insurance.  You need a prerequisite credit score to qualify and you must be VA eligible with COE.  Be sure to note that there are caps on the loan amount allowed.

Contract for Deed:   A contract for deed is an option that has been around for a long time, but is just starting to become a little more popular.  This type of financing generally works best for those who may have a damaged credit score or a short sale or foreclosure on their books.  You will need to provide your financial information and credit scores to the sellers in this situation and the sellers will have a chance to deny or accept the contract based on what they see.   A contract for deed is actually financed by the seller and all the terms are worked out between the buyers and sellers.  As a contract for deed is fairly risky for the sellers, they will usually not entertain offers for less than 20% down.  Again however, this is negotiable on a case by case basis. 

*This blog is written by Stacy Zachman, a REALTOR licensed in Minnesota with Edina Realty. Views expressed are the views of Stacy Zachman and not of Edina Realty or any other organizations that Stacy is affiliated with.