Down-Payment Got You Down?

For many Americans, "coming up" with a down-payment for their first home purchase can be a major roadblock -- and quite often the reason for renting, rather than owning, a home.

A "down-payment" is the difference between the home's purchase price and its mortgage amount. This percentage of the sale price must be paid up-front and can vary by lender, location, and loan program. A higher down-payment generally translates into lower loan interest rate requirements.

Typically, a down-payment comes from personal cash savings, but it can also be a gift that is not to be repaid, or a borrowed amount secured by assets.

While conventional loan down-payments may be close to 20% of the sale price, government loans typically have lower down-payment requirements. This allows potential homebuyers who normally cannot meet down-payment requirements an opportunity to qualify for a mortgage. Keep in mind that down-payments that are less than 20% of the sale price typically require mortgage insurance payments.

Down-Payment Assistance Programs

Fortunately, there are programs and organizations that can help you with your down-payment requirements:

Government Loan Programs - Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA) may offer assistance in paying your up-front cash requirements. These programs can significantly reduce your down-payment requirements. You may also want to contact your local Department of Housing and Urban Development (HUD) Community Builders to find out what local down-payment assistance programs are available.  Rural Development loans through your local lender or the Dept. of Agriculture require no down payment.  Only certain areas will qualify for this loan.  Please consult with your loan officer for more details.

State Housing Authorities - State agencies may offer down-payment assistance programs in your state.

Private Mortgage Insurance - Private insurance companies that offer you the opportunity to finance some of your down-payment requirements. This allows lenders to accept lower down-payments than they would normally allow.