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How to buy a home without a 20% down payment


Nov. 13, 2015 CNN Money

Home prices are on the rise, making it harder for buyers to cobble together a 20% down payment.

With the national average listing price for a four-bedroom, two-bathroom home at $302,632, according to Coldwell Banker Real Estate, home buyers need to come up with $60,526 to put 20% down.

But there are options for buyers who don’t have that kind of cash sitting in the bank.

1. Apply for an FHA loan

The Federal Housing Administration backs mortgages that require as little as 3.5% down.

Anyone can apply, though you’ll usually need good credit.

There are a few downsides though. For starters, the lower down payments can mean more paperwork and will translate into higher monthly payments since borrowers are financing more, warned real estate broker Brendon DeSimone.

Plus, you’ll need to pay mortgage insurance on the loan in addition to your principal and interest, which raises monthly payments even more.

But those extra payments are lower than they once were. At the start of 2015, the government reduced mortgage insurance premiums on some FHA loans, which increased the pool of borrowers.

“The fee change made more people see the FHA option as a financial alternative,” said according to Jonathan Smoke, chief economist for Realtor.com.

2. Look to see what Uncle Sam offers.

The Department of Veteran’s Affairs guarantees home loans with 0% down for current and former service members.

The loans come with competitive interest rates and no private mortgage insurance premium, but borrowers could pay some fees at closing.

The Department of Agriculture has a home loan program to increase homeownership in more rural and less-populated areas. USDA loans do not require putting any money down, but there are eligibility requirements, including income and property size.

Many cities and municipalities offer down payment assistance programs to help potential buyers, according to Smoke. “Some of the programs are based on profession, where you are living, income qualification ratios … they want to encourage people to buy.”

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