It is quite common to pay 20 percent down on a home with an 80 percent mortgage. Some other methods are low or no down payment.

• Veterans Administration loans (VA).
• Federal Housing Administration loans (FHA).
• Private mortgage insurance mortgages.
• Leases with an option to purchase.
• Seller carried back first or second mortgages. Seller financing may be suggested if the home is vacant or has been on the market for some time. On other occasions, a seller may need extra income and welcome the interest from the purchase money mortgage arrangement.
• Mortgage rate buy downs.

  
  

  VETERANS ADMINISTRATION (VA)
  The Veterans Administration (VA), is authorized to guarantee home loans made by lending institutions to qualifed veterans and service persons. The VA enters into an agreement with the lender which guarantees that a loan (up to a certain amount) will be insured in the event that the veteran or subsequent owner fails to repay the loan.

  
  A Veteran's Guaranteed Loan may be used for the following purposes:

  1. To purchase a home or condominium;
  2. To build a home;
  3. To repair, alter, or improve a home;
  4. To refinance an existing home loan;
  5. To buy a mobile home or lot;
  6. To buy and improve a mobile home on which a unit owned and occupied by the veteran will be placed;
  7. And/or to imporve a home through the installation of weatherization improvements such as solar heating or cooling system.
  
  For home loans, the amount of the loan may not exceed the reasonable value of the property as established by a VA appraisal. Although there is no limitation on the amount of a loan that is eligible for guarantee, there is a limit on the amount of the guarantee that can be issued on a loan. Loans eligible for insurance may not exceed the VAs current allowable figure multiplied by the veteran's specified entitlement. Check with a loan officer for the current maximum loan amount requiring no down payment. The current entitlement for each veteran may be obtained from a VA lender or the Veterans Administration Office.

  The VA does not require a down payment if the purchase price or cost of the property does not exceed the established reasonable value, but individual lenders may require one. If the purchase price or cost is more than the reasonable value, as determined by the VA, the difference must always be paid in cash from the veteran's own resources. Under certain circumstances, secondary financing may also be allowed. Another benefit available with this type of financing is that the seller may pay all of the closing costs for the veteran; therefore, the veteran could actually buy a home without putting any money down or paying any money for closing costs.

  There are two types of VA guaranteed or insured loans. One type of VA loan is the fully amortized loan of up to 30 years and 32 days. The second type of VA loans are VA-FHA graduated payments plans (GRM) covering 100 percent of the first $25,000 and 95 percent of the balance.

  Certain other requirements also apply:

  • VA loans are not available for the purchase of homes that will not be occupied by the owner.
  • All co-borrowers must be either a veteran or the spouse of a veteran.
  • Only one VA loan is allowed at a time; although veterans can re-use their eligibility many times as long as the previous loan has been completely repaid.

  
  

  FEDERAL HOUSING ADMINISTRATION (FHA)
  Similar in some respects to a VA guaranteed loan program, the Federal Housing Administration (FHA) insures mortages loans made by banks, savings and loan associations, and other FHA approved lenders. The amount of the mortgage loan is determined by FHA appraisal of the property. Properties must meet FHA standards; however, the appraisal is made solely to determine the maximum amount of the mortgage that FHA will insure, and does not warrant the property against defects.

  Some of the advantages of FHA financing are:
  

  
  
  • It allows for a lower down payment;
  • The loan often qualifies for lower interest rates,
  • The loan is fully assumable;
  • There are no prepayment penalties.

  FHA financing may be used by any qualified persons, whether or not they are US citizens. There is a lifetime limit of seven housing units that any one person can purchse using FHA financing. Several different FHA insured loans programs are available and include:

  
  

  1. 203 Program - A plan which allows for the purchase of one-to-four family units with a 3 percent down payment; the maximum length of the loan is 30 years.
  2. 245(a) - This loan program offers five separate Graduated Payment Mortgage (GPM) plans. The down payments and interest rates vary with each plan.
  3. 245(b) - This loan program offers two seperate Graduated Payment Mortgage (GPM) plans. They require a down payment of 7-8 percent and are available for proposed construction only.
  
  On January 12, 1990, the federal government issued new regulations and changes, under the Federal Housing Administration's (FHA) Mortgage Insurance program, which allow home buyers a 206 high-cost urban markets and counties to obain mortgages of up to $124,875. The previous ceiling had been set at $101.250.
  HUD (Housing and Urban Development) has also raised the FHA ceiling for scores of relatively low-cost housing markets. Check with a lending institution for the maximum mortgage amount.

  
  

  THE MORTGAGE RATE BUY-DOWN
  A mortgage rate buy-down is a somewhat new concept used by a builder of a new home or a seller of a used home, wherein, a fee is paid to the new permanent lende which lowers the mortgage payments over a one to three year period. This practice is often done in order to help buyers qualify and to attract more potential buyers. Buy-downs allow the lender to lower the mortgage rate in a stair-step type situation for one to three years. A typical buy-down, known as the 2-1 buy-down, calls for an interest rate that is 2 percent below the market for the first year and one percent below market rate the second year. After two years, the rate reverts back to the market rate at the time the loan originated and stays there for the remainder of the term. Other popular versions include a 3-2-1 buy-down and a condensed buy-down. In a 3-2-1 buy-down, the rate is 3 percent below market the first year, 2 percent the second year, and 1 percent the third. The rate in a condensed buy-down rises every six months rather than every 12 months. The cost to buy down the interest rate in any of the above fashions is usually the difference between what the lender actually earns on the discounted loan and what would have been earned had the loan been written at market value.

  
  

  ADJUSTABLE RATE MORTGAGE
  A note on adjustable rate mortgages: the buyer of a home may be able to find an adjustable rate loan with an interest rate that is 2 percentage points below market rate and, therefore, offers them some savings. But the 2-1 buy-down mortgage is a better package and is also safer. Most adjustable-rate mortgages allow for rate increases as large as two percentage points annually and 6 yo 7 points over the life of the loan. They buy-down locks in a 1 point annual increase for two yeas, for an maximum increase of 2 points total over the life of the loan. The buy-down is a good loan concept for all parties concerned.