Can’t Afford a High Down Payment on a Loan? Here Are Your Options

You have your eyes set on a home and are faced with two choices, either to make a bigger down payment or a smaller one. There are pros and cons to each. Let’s see:

A bigger down payment gets you:

• Lower interest rates
• Lower monthly payments
• Reduced mortgage insurance premiums

A smaller down payment gets you:

• Shorter home purchase process
• More money for making repairs and renovations
• Additional funds for emergencies

Which one sounds more attractive to you? If you said a bigger down payment, but you can only afford to make a smaller down payment, you’ll need to know your options. Since a smaller down payment requires you to pay a higher insurance premium, we’ll give you options that will drive down the monthly payments. 

Apply for an FHA-Approved Loan

Check if you’re eligible for the Federal Housing Administration (FHA) program. Low to moderate-income earners can apply for the FHA loan. The FHA loan offers loans to people who are on the low to moderate-income side. Since these are government-backed mortgages, the FHA-approved banks or lenders aren’t at risk. 

Compared to conventional mortgages, you’ll have better luck at securing an FHA loan. If you have a credit score of over 580, you may be eligible for an FHA loan with a down payment of 3.5%. If you have a credit score of 500 to 579, you may be eligible for an FHA loan with a down payment of 10%. 

The downside is that people may have to pay an upfront insurance cost of 1.75% of their loan amount. Moreover, the mortgage payment will include a monthly premium, ranging from 0.45% to 1.05% of their loan amount each year.

Apply for a USDA Loan

Low-income earners can apply for the United States Department of Agricultural Rural Development (USDA) loans. However, lenders only offer these loans in towns with a population of 10,000 people or less. USDA offers a down payment as low as 0%, but there is a downside. At closing, home-buyers may need to pay an insurance premium of 2% at loan amount and an insurance premium that is equal to 0.5% of their loan.

Apply for the VA Loan

The United States Department of Veteran Affairs gives retired or active-duty military personnel VA loans. A veteran’s surviving partner is also eligible for a VA loan. A VA loan allows them to purchase a home without making any down payment on it. 

They offer good interest rates and flexible rules for lending money. Most lenders that offer VA loans require the person to have a credit score of 580 or more. The downside to VA loans is that you need to cover the initial payment of 2.3% of the loan amount, which you can either upfront or add it to your mortgage payments.

How do I know which option is right for me?

That’s what Northwest Mortgage is here for. We can help you determine which type of mortgage is right for you by evaluating all your options and then help you make the right decision. Contact us today to get started.