Lenders offer numerous special loan programs
that allow small down payments or feature other benefits. Some target
first-time home buyers while others primarily help people who don't
make much money.
If you need extra help getting into a home, you should
check with your bank or financial institution to see if they offer
any of these special mortgages. State housing agencies, local Department
of Housing and Urban Development, or HUD, offices and Consumer Credit
Counseling Service branches can usually provide references, too.
Here's a brief summary of some of the more popular
Department of Veterans Affairs,
or VA, mortgages
Backed, but not issued, by the U.S. government, VA loans help veterans
and their spouses buy homes. No down payment is required (except
for relatively expensive properties) and other benefits may apply.
The government says it is more understanding than conventional lenders
toward borrowers who default.
Federal Housing Administration,
or FHA, mortgages
Administered by HUD, FHA loans are backed, but not issued, by the
U.S. government and feature easier credit qualification, down payment
and underwriting standards than conventional loans. HUD collects
mortgage insurance payments from borrowers and ensures lenders full
payment if those borrowers default.
Rural Housing Service mortgages
The Department of Agriculture provides low-interest, no-down-payment
loans to farmers and other qualified borrowers with low to moderate
incomes buying property in rural areas or small towns who are unable
to obtain loans elsewhere.
State and local government-backed
Many state and local housing agencies sponsor programs to help first-time
home buyers who meet specific income guidelines or who are willing
to buy homes in certain locations. Loans feature low down-payment
requirements, subsidized interest rates, help with closing costs
and other benefits.
Down payment assistance programs
The late 1990s brought a new wrinkle in FHA-insured loans. The FHA
required buyers to make down payments of at least 3 percent but
also allowed nonprofit agencies to bestow gifts of down-payment
money to buyers. Nonprofit agencies sprung up to do just that; not
exactly what the FHA intended, but the federal government has passed
on opportunities to stamp out down payment assistance programs.
Down payment assistance requires the cooperation of
the seller, buyer and lender. The seller agrees to donate money
to the down payment assistance program (usually equivalent to a
3 percent down payment). At closing, the program gives the money
to the seller out of the program's pool of money. Immediately afterward,
the seller gives the program a contribution equal to the down payment
plus a processing fee. This satisfies the FHA's regulation that
prohibits the seller from giving the down payment to the buyer.