Purchasing a home is a major financial decision. It's also something that can require a lot of money upfront. A down payment of at least 20 percent has long been considered ideal. However, 20 percent may not be easily saved especially in areas with sky-high housing prices. While a larger down payment can mean a lower monthly payment in addition to quicker financing, it's not necessary in order to buy a home. Here are three tips for getting a home loan for those who are having trouble saving up a large down payment.
Check Credit Score
While a sizable down payment can be very helpful when it comes to getting financing for a home, credit also plays a major role. A good credit score signals to lenders that a person makes responsible financial decisions. A credit score above 740 will often qualify a potential homeowner for the best interest rates while a score under 620 will make it very difficult to secure financing. In some cases, it may make more sense to pay down debt with any additional funds in order to improve credit scores instead of saving for a large down payment.
Look At Options That Require Little Or No Down Payment
The good news for those who are having trouble saving up a large down payment is that not all lenders require them. Veterans, active duty service members, as well as those in the National Guard and Reserves may qualify for a no down payment mortgage through the Department of Veterans Affairs. Military personnel, as well as some civilian employees of the military and US Department of Defense, may also qualify for a no down payment mortgage through the Navy Federal Credit Union. There are also options for those not affiliated with the military. In some areas, it may be possible for a mortgage through USDA's Rural Development program. This program offers mortgages with no down payments in certain eligible areas. The Federal Housing Administration (FHA) offers home loans to those with lower credit scores and down payments as low as 3.5 percent.
Mortgage Insurance And Borrowing From Retirement Funds
For those who want a home loan in the near future, there are a few options. One is to get financing with a lower down payment and to pay mortgage insurance. Mortgage insurance is an extra monthly fee that is paid whenever borrowers don't have a 20 percent down payment. While it does add to the monthly cost, it's put in place to protect lenders. Potential homeowners can also look for other ways to fund their down payment. First-time homeowners can borrow up to $10,000 from their IRAs without penalty. Many 401(k) plans also offer the option of borrowing money from the fund in order to pay for a down payment.
Saving a down payment can be difficult. However, those who are having trouble saving up for a 20 percent down payment on a home do have options. Having a good credit score can make it easier to get a home loan with a lower down payment. Potential homeowners should also look into financing that's available with no down payment or a low down payment. It's also possible to borrow from retirement funds in order to come up with a larger down payment in a short amount of time.
Check out places like FCN Bank for more information today.