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Special loan programs for small down payments

Acquiring a sizeable down payment is a very important aspect of buying a home and getting a mortgage.

Some people may find it quite difficult to save up for a down payment, which could ruin their chances of ever buying their own home.

But luckily, there are special programs and assistance available for people who are finding it difficult to obtain a down payment.

“Low down payments,” an article posted on Bankrate.com on May 1, 2006 gives the ‘low-down’ on special programs that can help you get into your dream home.

“Lenders offer numerous special loan programs that allow small down payments or feature other benefits. Some target first-time home buyers while others primarily help people who don't make much money.”

The author states that the most popular programs that are offered are the Department of Veterans Affairs, or VA, mortgages, Federal Housing Administration, or FHA, mortgages, Rural Housing Service mortgages, State and local government-backed mortgages and Down payment assistance programs.

“State housing agencies, local Department of Housing and Urban Development, or HUD, offices and Consumer Credit Counseling Service branches can usually provide references, too.”

There are a variety of options available for people struggling with the burden of a down payment.

Starting with the VA, this organization helps veterans and their spouses buy homes. It is a program backed by the U.S. government.

“No down payment is required (except for relatively expensive properties) and other benefits may apply. The government says it is more understanding than conventional lenders toward borrowers who default.”

The FHA is administered by HUD and like the VA, it is also backed by the U.S. Government.

“They feature easier credit qualification, down payment and underwriting standards than conventional loans. HUD collects mortgage insurance payments from borrowers and ensures lenders full payment if those borrowers default.”

The Rural Housing Service mortgages helps people in the agriculture and farming industry get in a home.

“The Department of Agriculture provides low-interest, no-down-payment loans to farmers and other qualified borrowers with low to moderate incomes buying property in rural areas or small towns who are unable to obtain loans elsewhere.”

The down payment assistance programs are a bit different from the ones mentioned above in that they came into existence because of a law from the FHA in the 1990s that required buyers to make a down payment of at least 3 percent. But it also enabled non-profit organizations to make a gift of the down payment to buyers.

“Down payment assistance requires the cooperation of the seller, buyer and lender. The seller agrees to donate money to the down payment assistance program (usually equivalent to a 3 percent down payment). At closing, the program gives the money to the seller out of the program's pool of money. Immediately afterward, the seller gives the program a contribution equal to the down payment plus a processing fee. This satisfies the FHA's regulation that prohibits the seller from giving the down payment to the buyer.”

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