The path to homeownership may seem financially daunting, but there are several lenders and government initiatives to help facilitate the process. Qualified homebuyers can benefit from loans with minimal down payment requirements and access local buyer assistance programs. Additionally, options are available for financing homes needing renovations, often at a lower upfront cost.
A larger down payment or an all-cash offer can boost your competitiveness as a buyer. Generally, people save up to 20% of the home’s value for the down payment. However, this isn’t always necessary. You may need less money for a downpayment if you qualify for a government-backed loan. This means you may be closer to meeting the necessary down payment threshold than you realize. Read on to learn more.
FHA Loans
Federal Housing Administration (FHA) loans have become a popular choice for first-time homebuyers as they have a low down payment requirement of just 3.5%. Recent federal data indicates that nearly 73% of borrowers put a downpayment of less than 10% towards their loans between October and November 2021. However, if your credit score falls below 580, a 10% down payment would be necessary. Loan limits vary based on location, with maximums ranging from $420,860 to $970,800 for 2022.
FHA loans require mortgage insurance, which safeguards the lender’s investment in case of borrower default. Borrowers can also pay an upfront premium as part of their closing costs or an ongoing premium in their monthly mortgage payment.
VA Loans
The Department of Veterans Affairs (VA) assists service members, veterans, and surviving spouses in purchasing homes through VA loans. These loans offer substantial benefits, often waiving the need for a down payment or mortgage insurance. They also permit borrowers to have higher debt-to-income ratios and qualify for larger mortgage amounts than other loan programs.
The Department of VA does not establish specific credit or income requirements. However, individual VA lenders will still have their criteria. According to ICE Mortgage Technology data, VA borrowers’ average credit score between January and November 2021 was 722. The standard VA limit for 2022 is set at $647,200. High-cost areas may have higher numbers, reaching up to $970,800.
USDA Loans
The U.S. Department of Agriculture (USDA) operates a home buyers’ assistance program that extends beyond rural farming areas. This program enables 100% financing by providing mortgage guarantees to lenders. While commonly associated with agricultural regions, USDA loans also cover select suburban areas.
Income limitations apply, and they vary depending on the geographical region. In 2022, the standard income limit for households with fewer than five members was $91,900. The limit for households with five to eight members was increased to $121,300.
