The financial crisis of 2008 has placed paranoia and extreme caution in the minds of professionals in the real estate industry, leading financial institutions to tighten measures on approving home loans. This has led to the need for prospective home buyers to prepare between 10 and 25 percent of the home value as down payment.

Buyers may go down the route of applying for government loans due to the lower initial payment required, but the current approval process for VA and FHA loans have also become more stringent than before. In fact, credit reports and down payment capacity are still important factors that affect the loan amount and interest rate for government home loans.

Is there a way to get approved without forking too much on down payment?

real estate home buyingDespite the sour note caused by the past recession, interested home buyers can still see a glimmer of hope. If you have a good credit standing but are finding it hard to shell out a sufficient amount of money for down payment, here’s some good news: Some lending companies can still approve your application for mortgage. Supporters of better home financing options like the Center for Responsible Lending have come up with various ways to help those who cannot afford down payments at 10 percent of the total purchase price.

Making down payment still difficult despite uptick in housing market. The country has been showing great promise in the housing market since the fourth quarter of 2011. The values of homes have steadily increased, while demand for more homes is also growing. Add the low mortgage rates to the equation, and we’ve got ourselves a booming marketplace.

Unfortunately, this surge in the interest of people to purchase a home does not necessarily translate to higher paying capacity. Although some buyers are able to prepare a down payment, existing homeowners looking to transfer to a new home may not be able to get enough equity to be able to afford a 20 percent down payment. As a result, more people have been choosing VA and FHA loans to finance their dream residence.

A traditional mortgage will require a down payment not lower than 20 percent, which is also the same scenario as jumbo mortgages.

Are you a first-time buyer?

Lenders are more lenient when dealing with people who are buying a home for the first time. Some first-time purchasers are granted loans even if they put only 3.5 percent as down payment. In fact, the pre-recession housing market approves loans without the need for a down payment! That season has long gone, but a 3.5 percent down payment is a huge relief for first timers who want to buy a home. This figure is aligned with the regulations set by FHA:

Your down payment can be as low as 3.5 percent of the purchase price, and most of your closing costs and fees can be included in the loan.

In addition, FHA describes some of the factors that may affect loan details such as amount and mortgage rate:

Many borrowers find there are additional factors that affect the amount of the down payment. For example, those who do not qualify for the most competitive loan terms may not be able to get the lowest required down payment. Credit issues or other factors may affect the lender’s perception of your credit worthiness. That can affect the terms, rates and down payment you’re qualified for from that particular lender.

Choose VA mortgage if you don’t want to shoulder down payment

Military personnel past and present are eligible to purchase a home under the VA loan program. The home purchase under the government program includes insurance coverage by the U.S. Department of Veterans Affairs. Also allowed in the program are spouses of personnel who died in service of the country.

The program understands the life of oft-deployed military personnel, and so intermittent occupancy of homes is allowed. It is also lenient when it comes to buyers who may have filed for bankruptcy or have ongoing debts. This leniency extends to the fact that there is no need for mortgage insurance.

What’s the deal with mortgage insurance?

This insurance is an additional requirement for conventional loan borrowers who cannot afford the 20 percent down payment. By taking out a private mortgage insurance (PMI), you are helping to ensure that the lending institution is insured for the loan-to-value amount of more than 80 percent of the purchase price. If you as the buyer are required to get a PMI, you will be paying the insurance premiums on top of the mortgage payments every month.

More down payment for condo unit buyers

Condominium units have unique – and often complicated – ownership details that expose the mortgage lenders to higher risks than buying traditional single detached homes. That is why lenders require buyers to prepare a down payment not lower than 10 percent of the home price.

Are you ready to buy? Do you have more questions?

I’d love to assist you on your next home purchase!

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