These are great mortgage programs available for home buyers this year.  I keep up on the latest programs available and find things most bankers don’t realize are available.  These programs are available for all buyers, not just first time buyers.  If you have family, friends, or co-workers thinking about buying a home this year, it truly is a great time to buy.  Two main reasons:

1. Loads of cheap inventory that banks need to sell.  You have many homes to choose from.
2. Interest rates are still at historic lows.  We plan on seeing them this low through most of summer, because of the government actions to keep the rates low.

On top of that, here are the most popular programs lately, since most buyers are not looking to do a big down payment.

2011 Mortgage Programs For Buyers

• USDA Rural Housing - This program is one of only two true no down payment programs still available.  On top of no down payment, the buyer can roll the closing costs into the mortgage loan if the value of the home is a bit more than the accepted purchase price.
• Fannie Mae HomePath - This program just announced that Fannie Mae will pay 3.5% of the closing costs for the buyer if they buy a HomePath eligible home.  These are homes that Fannie Mae bought back and is looking to resell.  This credit offer is only good through June 30th, so don’t hesitate with this one.  You can find homes are HomePath eligible here.
• Single Premium MI (mortgage insurance) - This is a way to avoid the MI payment without having to put a 20% down payment.  A single premium MI is considered a closing cost, which can be paid by the seller in the offer to purchase contract.  By paying the MI as a single premium you will not have monthly MI as part of your mortgage payment.  Even if the seller doesn’t agree to pay for closing costs, you can pay this as a one time cost to avoid monthly MI.

There are many other programs available, but the ones above are very beneficial to most buyers.

If you have a 401k account, you have a down payment for your home.

Contact the person who handles your 401k account and ask them about information for borrowing against your 401k.  Most 401k plans allow you to borrow against the value of the account.  Generally, the max you can borrower is 50% of the current value.  This will be a loan borrowed to yourself, because the money you pay back goes right back into the 401k account.  I believe the average interest rate you pay on the money borrowed is around 6%.

Lenders allow you to use this money as the downpayment for your home, so take advantage of it.  They don’t count the debt against you in the total debt to income ratio and they only ask that you show that the funds came from your 401k account.

This option for a down payment on a home is overlooked all to often.

The down payment seems to be one of the most important factors in buying a home.  As it should be, because the more money you put down, the lower your total monthly mortgage payment will be.

A down payment should be determined by the following questions:

1.  How much can you afford?

Your down payment should NOT consist of all the money you have in your savings account.  Why?  Well, let’s say the water heater happens to break down in the first year of buying the home.  That kind of break down can cost thousands of dollars!  It’s something most people would never expect, but it’s possible.

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You see, most people buy an existing home (especially a first time home buyer) and existing homes do have wear and tear just like anything else.  Eventually, something will break or tear, leading to a repair.  Sometimes it may only cost $10, but other times it may cost $5000.  So, keep a little money in that savings account in case of an emergency.  You will thank me later!

2.  Is the monthly payment or the down payment more important to me?

It’s quite simple, the more of a down payment you have, the less your overall monthly payment will be.  The less of a down payment you have, the more your overall monthly payment will be.

Example in real numbers:

The purchase price is $200,000 and you decide that a down payment of 20% is something you can afford.  The principal and interest payment (not including the taxes and insurance) on a 30 year mortgage at 5.0% would be $858.91.  Now, assuming the same scenario, but the down payment is only 10%, the payment would be $966.28.  The difference in a monthly payment is $107.37.  Over 1 year that’s $1288.44.  Over 5 years that’s $6442.20!

The important part to keep in mind about that example is that the difference in monthly payments just saved you $6442.20 over the next 5 years, because the down payment is only 10%.  Now, the difference in down payment money is $10,000.  So, if you are looking to save the most money out of your pocket, then put a less of a down payment down.  As long as the monthly payment is affordable, you will always keep more money will less of a down payment.

3.  What is the minimum down payment lenders allow?

Right now, in today’s lending environment, there are only 2 ways to obtain a mortgage with absolutely no money down.

1. VA Mortgage Loan – You can be eligable for this type of mortgage if you or your spouse is active in the military or is a veteran of the military.
2. Rural Housing Loan – You can be eligible for this type of mortgage if the home you are looking to buy is in a rural housing area.  The area is determined by the USDA.

…if you have more questions about the details of those two no down payment mortgage loans, please don’t hesitate to contact me.

If you don’t qualify for a no down payment mortgage loan, then the next lowest down payment mortgage is a FHA mortgage loan.  FHA only requires a minimum of 3.5% for a down payment.  Yes, only 3.5% is required for a down payment with this mortgage program.  It has become the most popular program lately, because of it’s low down payment, favorable interest rates, and you can still qualify will less than perfect credit.

These are the types of questions you should know the answers to before looking to buy a new home.  The more knowledge you have, the more comfortable you will be in making an offer on a home.

If you are a first time home buyer, you should read Top 5 Mortgage Questions Answered For First Time Home Buyers.

Don’t forget to read up on closing cost credits.