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A down payment is a portion of the total sales price of your home that you pay up front to the lender. This shows that you have skin in the game, and it protects the lender should you default on your loan. While a 20 percent down payment used to be the standard, that's no longer the case. In fact, there are several programs available to help you come up with the funds for your down payment, including government-backed loans.
FHA Loans
One option for assistance with your down payment is an FHA loan. FHA loans are a type of government-backed loan that allows for a smaller down payment—as low as 3.5 percent of the total sales price. These loans are still subject to some degree of risk for the lender, which is why borrowers are required to pay mortgage insurance premiums (MIP). However, these premiums can be rolled into the overall loan amount, making it easier for borrowers to afford their monthly payments.
VA Loans
Another option for assistance with your down payment is a VA loan. VA loans are reserved for members of the military (active duty or veterans) and their families. These loans do not require a down payment, and they also come with lower interest rates than other types of loans. In addition, there is no monthly mortgage insurance premium required with a VA loan.
USDA Loans
Another type of government-backed loan is a USDA loan, which is available to those who live in rural areas as designated by the USDA. Like FHA and VA loans, these loans offer assistance with your down payment, and they also come with lower interest rates than other types of loans. One thing to keep in mind with USDA loans is that there is an up-front funding fee that can be financed into the overall loan amount but there is no monthly mortgage insurance premium required.
The bottom line is that there are numerous options available when it comes to assistance with your down payment, including government-backed loans like FHA, VA, USDA loans, First time home buyer loans and so much more. So if you're looking to buy but need help coming up with the funds for your down payment, don't despair—there's sure to be a program out there that's right for you. Talk with your favorite lender today about the options that may be right for you.