One of the most challenging parts of purchasing a house is often coming up with the down payment. With lending restrictions growing increasingly tighter, qualifying for a home loan often involves impeccable credit and a full 20% down payment. While low down payment loans still exist, they have gone increasingly out of favor as lenders tightened their purse strings and their qualifications.
There are many responsible reasons that a buyer may wish to purchase a house even though they are not able to provide the money up front for a down payment. The buyer might have a high net worth, but their assets may not be liquid at the time. The buyer may have found their ideal house on the market right now, and need to act quickly to secure it. It can be that the buyer has a secure, steady paying job that can afford a mortgage, and simply has not accumulated the funds yet. A 20% down payment can be a substantial sum to save, and a buyer may simply need help with down payment to buy a house.
Relying on family is a traditional option when looking for a down payment, but it can be a less than optimal solution. Managing debt between family members can be stressful and cause rifts, and additionally many mortgage loan officers discourage the practice. If it is possible and will not strain relationships, a family loan can be a good resource for a down payment.
For buyers with low income, the government offers first time home buyer grants. These grants are generally determined by your income and your number of dependents. Some of these grants do not need to be repaid, and some have a monthly charge. Some of these grants function as a second mortgage on the home. These options can be excellent for a buyer that has either a low income, or is supporting many people. Unfortunately, those making a moderate income will not qualify for this assistance, and there are limits on the cost of the home.
Another alternative is to contact a not-for-profit home buyer assistance program. These programs generally assist first time homebuyers in purchasing their homes. Sometimes the not-for-profit program does this directly, and other times the seller donates money to the not-for-profit and the not-for-profit donates it to the homebuyer. The latter scenario is in place due to a 2008 legislation which no longer allows seller assistance direct to the homebuyer.
Secondary financing for your down payment to buy a house is also an option. In this scenario, you could take out a traditional loan for 80% of the purchase price, and a second loan for 15% of the purchase price, leaving your down payment at only 5%. The only problem with this is that few lenders offer it, and the interest rate for the second loan may be high. Secondary financing has the advantage of having less limitations than government or not-for-profit programs.
A final alternative can be looking into government programs such as the Fannie Mae Home Path program. This program allows down payments as low as 3.5% if the buyer agrees to purchase and live in a Fannie Mae foreclosure. FHA and VA loans can provide similar benefits, though they have specific qualifications.
Purchasing a house is often the largest and most important financial investment a person will make, but it need not be stressful. Doing your research and using the resources that are available to you will make the journey to owning your own home immeasurably easier and less costly.