Low & No-Down Payment Programs

If you are planning on financing a new home to live in, there is good news out there! There are many programs now available to help make that dream a reality. This week we will give an overview of the zero-down 100% financing programs available. Next week we will tackle low-down payment programs. In week three of my 3-part series, we will examine how various down payments from 5% to 15% will affect your rate and mortgage insurance payments.

Below is a quick index to what’s currently available for with zero-down (100%) financing. For more information on any of these programs, please let me know.

Zero Down:
If the goal is to get into a home with no down payment, there are two options for you. Each has its own restrictions, so it is important to know if you meet the qualifications.

VA loans are restricted to active and former members of our military. That includes the National Guard and Coast Guard. Based on your type of service, there is a certain amount of time served before you are eligible. The good news is that the time served is drastically reduced if you have served in a combat area. With ongoing operations overseas, many who did not have enough time in the service in years past, now has immediate access this program.

VA loans not only offer 100% financing, but the best rates available. And since these loans are insured by the government, there’s no separate mortgage insurance premiums.

VA loans also allow for lower credit scores than most other loan programs. They also allow you to qualify for a bigger loan with your income than any other loan program.

100% financing is capped at a limit for each county. If you wish to purchase something above that limit, you will have to put a down payment equal to 25% of the amount over that limit. To use Oahu for an example: The VA 100% limit is $721,050. If you want to buy an $821,050 home, your down payment is 25% of the $100,000 difference, or $25,000.

USDA Rural Housing loans are another government insured program. Most consumers have never heard of this program. You may think that a program administered by the US Dept. of Agriculture is some type of farm loan, but it is not. Rural housing is simply homes outside cities.

For neighbor islands, it is pretty easy to determine if a home is considered rural or not. For Hawaii Island, everything outside of Hilo qualifies. On Maui, everything outside Kahului is okay. For Kauai, Molokai, and Lanai, there are no restrictions. Oahu is a little more complicated. Basically it’s the west side, starting at Ewa Beach to Waianae, all of the North Shore from Waialua wrapping all the way around to Kahaluu, and lastly Waimanalo. We have digital maps that can search specific addresses or areas to see if the home or area qualifies.

USDA rates are much lower than conventional mortgages. The USDA does have a monthly fee similar to a mortgage insurance premium, but the rate is significantly lower than any MI on a conventional loan.

USDA does have one additional restriction. The program is designed to help moderate to low-income families. What that means is that there are maximum income limits. The limits are different for each county in the state, and are higher when there are more family members.

Luckily there is also a web-based tool we use to calculate your income versus the country limits. If you want to know if your income meets the income restrictions, or if a property meets the geographic restrictions, please contact me for a simple assessment.

Throughout this brief synopsis I have consistently used the term “home”. USDA loans are not restricted to single family homes. Any condo project approved by VA or meets Fannie Mae and Freddie Mac guidelines is eligible.

USDA does allow for lower credit scores than many conventional loan programs, but it is the most conservative with how much they will allow you to borrower.

Even with the restrictions listed above, USDA is still preferred over conventional loan programs. I always make it a practice to see if an applicant qualifies for this program first, before moving to conventional financing.

Nest week we will explore FHA, Fannie Mae’s Home Possible program, and Freddie Mac’s Home Affordable programs. These programs all required small down payments of 3½% or less.