Saving the average 20% for a down payment on a home can seem like a daunting task. If the selling price of the house you want to buy is $200,000, that means you need $40,000 in the bank to qualify for many conventional Home Loans. Fortunately, it is possible to get 100% financing on your mortgage, which means you need very little savings to buy your first house. Here are some options: Piggyback Loans Piggyback loans are additional loans that help you cover the cost of your missing down payment. For example, if your conventional mortgage covers 80% of the amount you need, you would need a piggyback loan for the remaining 20%. So if you need a $200,000 loan, your mortgage will be for $160,000 and your piggyback loan amount would be $40,000. Oftentimes piggyback loans will be Home Equity Loans or Home Equity Lines of Credit. Private Mortgage Insurance In some cases, provided you have excellent credit and a solid income, you may be able to get 100% financing if you're willing to purchase Private Mortgage Insurance (PMI). This insurance covers your mortgage should you be unable to make payments. The cost of the insurance varies depending on the lender and your specific situation, but expect to pay about $50 or so for every $100,000 of your loan. You have a legal right to stop paying PMI once you have 20% equity in your home, and you'll probably have to fill out paperwork to cancel your PMI. Special loans Certain mortgage loans--like FHA loans or VA loans--are designed for the special needs borrower. In many cases, you can qualify for one of these loans with little or no down payment, provided you meet certain requirements like income restrictions, home value restrictions and other criteria. Most mortgage lenders should be able to assess your situation and determine if you qualify for one of these special loans. If you don't have savings for a down payment, you still have many options available to you when you want to buy a home. It's possible to get 100% financing if you're willing to take on an extra loan, pay for insurance or if you qualify for special financing. |
