Your First-Time Home Buyer Down Payment Options
March 27, 2013
Tips & Trends
From Rory S. Coakley on some of the latest real estate news and happenings.
For many first-time home buyers, there’s one big question looming in their minds: how am I going to afford a down payment? There are many people in the DC Metropolitan area who have good debt/income ratios and good credit, but don’t have the liquid assets available to pay for a traditional 20 percent down payment. Let the experts at Coakley Realty put your mind at ease by answering some of your questions about first-time home buyer down payment options!
What are my options if I can’t afford a down payment upfront?
If you can’t afford any down payment upfront, your options will be limited unless you qualify for a VA loan for US military veterans. However, there are many first-time home buyer down payment options that require less money up front, such as:
- FHA Loans – These loans require as little as a 3 percent down payment, but there are limitations on qualification.
- Conventional 97 – These loans are available through Fannie Mae, and they are a 3 percent down payment program.
- Local programs – Some local jurisdictions have their own programs (subject to qualification) that will allow you to either borrow or get a grant for the down payment or put as little as $500 down. Check out the available programs in:
How do FHA loans work? Can I refinance down the road to eliminate the insurance required?
An FHA loan is an insured loan that has a liberal approach to both credit scores and down payments. They are an excellent option for first-time home buyers, as they allow the most flexibility in payment. Some traits of the FHA loan include:
- Down payment as low as 3 percent.
- Down payment can come entirely from “gift funds.”
- Minimum credit score requirement of 500.
- Mortgage insurance premiums paid upfront at closing, and monthly after that.
- No prepayment penalty.
Since there are no prepayment penalties on FHA loans, you can refinance your loan whenever it makes sense—you don’t have to wait 10 years. You can refinance into a conventional loan, as long as it doesn’t exceed 80 percent of the lender’s appraised value. That means you will no longer be required to pay the FHA’s mortgage insurance. Additionally, if you’re not ready to refinance, the insurance will drop off once you reach a certain amount of equity in your home (generally around 22 percent). There are new rules that are set to take effect later this year that may alter the automatic mortgage insurance drop-off.
Where can I find more information about first-time home buyer down payment options and programs?
When you have questions about being a first-time home buyer, a simple Google search just isn’t enough—you need to talk to a professional real estate company that knows your area inside and out. The professional, expert real estate agents at Coakley Realty can answer any questions you have about being a first-time home buyer and how to make your home buying process simple. Contact us today to learn more about buying a home in Maryland, Northern Virginia, and Washington, DC.
If you would like to suggest a topic for inclusion in one of our future email newsletters, contact us today! We look forward to hearing from you.
Rory S. Coakley
Coakley Realty, Inc.
20 Courthouse Square, Suite 106
Rockville, MD 20850
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