There is little worse than wanting to buy a home in St. Paul and knowing that your steady employment history, decent income and clean credit history don’t matter if you don’t have a huge chunk of cash to give the lender to secure a mortgage.
It’s known as “cash poor,” and you aren’t alone. If you’re thinking that zero to low down payment mortgages are a thing of the past, think again. They still exist and there are ways you can get into that home with little cash out of your pocket.
No down payment: VA Loan
The United States Department of Veterans Affairs doesn’t actually grant loans. They guarantee the repayment of a portion of the loan should the borrower default.
The loan is actually granted by a private lender but not all lenders participate in the program so you may have to shop around for one. We are happy to refer you to one of our lending partners.
The VA-backed mortgage comes with several attractive features and foremost among them is that there is no down payment requirement. There is also no mortgage insurance requirement, which saves you money on your monthly payment.
You will need to pay a funding fee but it can be wrapped into the loan amount. The amount of the fee, by the way, varies depending on whether you served in the Guard, the Reserves or the regular military and whether this is the first or subsequent time you’ve used your VA benefits.
No down payment: U.S. Department of Agriculture
The United States Department of Agriculture (USDA) offers the Rural Development home loan program which requires no down payment. The program actually offers two types of loans, one is direct from the government and the other is a guaranteed loan, much like the VA and FHA backed loans.
Both require that the home be located in a rural area – so if you are insistent about remaining in St. Paul, you won’t be able to use the USDA loan.
Low Down Payment: FHA
The most popular loan program for first-time buyers, the FHA-backed loan has gone through some changes over the past several years. Most recently, the program has changed its mortgage insurance requirement so that you must retain this insurance for the life of the loan.
With a conventional loan, on the other hand, you can dump PMI when you reach 80 percent equity in the home.
At any rate, if the FHA program is what you want, you’ll pay either 3.5 percent or 10 percent of the loan amount as the down payment, depending on your financial picture and the lender’s requirements.
Low Down Payment: Fannie and Freddy
The new loans will only be doled out to those who buy private mortgage insurance, have a credit score of at least 620 and offer complete documentation of their income, assets and job status. And, to further mitigate risk, the agencies will require borrowers to receive home ownership counseling.
Oh, they must also agree to participate in home ownership counseling.
No Down Payment: Down Payment Assistance
Here in St. Paul you can take advantage, if you qualify, of several down payment assistance programs. Some of the programs offered come from the Minnesota Housing Finance Agency, Ramsey County Housing and Redevelopment Authority’s FirstHOME Buyer Assistance Program (for first-time buyers) and CityLiving in Saint Paul.
Kris Lindahl has authored ebooks about both the VA and the USDA loans so if you’re interested in learning more about either program, request your free copy.
Image by thephotographymuse via CC BY 2.0