Some people only dream of becoming homeowners, often feeling left out of the elation of finding homes for sale that are just perfect for you and your family. In many cases, potential buyers are discouraged and feel that it's all about the money and the daunting prospect of coming up with that dreaded 20% that lenders seem to require, or do they? Read on to learn why and how it's entirely possible for buyers to disregard the need for that 20% down and to realize their dreams of homeownership today:

What is a down payment?

Money, from various sources, that is used to reduce the amount borrowed, usually represented by a percentage defines a down payment. For example, if you are putting 20% down (payment) on a $100,000 home, you would need to come up with $20,000. The funds used can come from many places, such as savings, a gift, an inheritance or from a retirement account. Typically, down payment amounts are lower for primary residence homes and higher for secondary residence loans or investor loans.

Alternatives to the 20% down payment option

There are more loan options for buyers who just cannot come up with that minimum amount than ever before, such as:

  1. The Federal Housing Administration (FHA) loans provide buyers some options for lowering that down payment requirement, and it can be lowered to a mere 3.5% for applicants with a credit score of at least 580. If your score is lower than that, the FHA might still be able to help you with a loan that requires a 10% down payment, as long your score is at least 500.
  2. The Veterans Administration has offered those who serve our country a mortgage guarantee for many years, and it's helped millions achieve the dream of home-ownership without having to pay a single dime on the down payment. Originally introduced as part of the 1944 GI Bill of Rights for those returning from World War II, VA loans have helped applicants through its loan guarantee program to the tune of 20 million loans since its inception.
  3. The U.S. Department of Agriculture is another government guaranteed loan program meant to help populate the more rural areas of the country, and it too offers programs with low down payments. You must pick a property that is considered "rural" to qualify, but this definition includes many suburban areas near large cities, and there is no requirement to have a farm, produce crops or keep animals.
  4. Fannie Mae/Freddie 97% loans have resurfaced once again, and these loans can represent a wonderful opportunity for those who can come up with the 3% down payment. You must have good credit to qualify for these new conventional loans, and there are some caps on the size.