Home prices are rising and, in many parts of the country, limited supply has sparked bidding wars. While it's difficult sometimes for buyers of more modest means to compete in this marketplace, it is possible to obtain a mortgage with less than the standard 20 percent down payment.
"The options are out there and exist to make sure that people have the ability to buy and invest in real estate, even in today's competitive housing market and tight credit environment," says Don Frommeyer, president of NAMB (The Association of Mortgage Professionals). He offers these tips for homebuyers:
Make sure your credit score is up to snuff
This is among the most important factors for lenders. They want to see a clear credit report and a history of on-time payments for debts such as credit cards and auto loans.
Prove you can afford a home
Prepare all documents showing income and savings. Lenders want to see at least two years of steady income and sufficient savings to prove you can cover mortgage payments for at least a few months. This calculator will help you determine how much house you can afford so you'll have an idea before you approach a lender.
Cast a wide search net
When shopping for a mortgage, consider both traditional banks and mortgage brokers and make sure to look at all options, such as VA loans for military veterans, FHA loans and U.S. Department of Agriculture loans if you're in a rural area. All of these have lower down payment requirements if you qualify. Compare all the fees, including estimates and closing costs, of at least two lenders before making your final selection.
Be prepared to pay more
Finally, mortgages with a smaller down payment typically require mortgage insurance, which will add to your monthly payment. Make sure you understand how much extra you'll have to pay.
Check out these four secrets to budgeting for a home purchase.
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