Very Little $ for downpayment on a home ... What are my options?

[ilovemygirl]

We need to leave our rental soon and are thinking about buying a home for the first time. We have very good credit -never pay anything late, always pay off the credit card every month with no interest and dh has been at the same company for a very long time.

The problem is we have very little to put down ... maybe 5%. We are not looking to buy anything fancy or expensive. Is there any way we could even get a loan? I've been looking into the FHA loans because it seems you can put so little down and even roll the closing costs in but I wonder what the catch is? Does anyone know? Since we have good credit would we be eligible for a conventional loan even though we don't have the cash? Any advice? 

Thanks!

[Bokonon]

An FHA loan requires 3.5% down and a conventional loan is 5%.  You may also have to pay closing costs or at least a portion of them (you can ask the seller to pay up to $11,500 of the closing costs when making an offer, but they don't have to accept that), and you will have to pay for the home inspection as well, and utility deposits, moving costs, etc.  It adds up fast.  :(

I would recommend talking to a realtor and getting a recommendation for a loan officer to run your credit and find out what kinds of loans you would qualify for and get pre-qualified.  That's the best place to start.

Good luck!  I am also house-hunting and we've been pre-approved for an FHA loan.

[Caneel]

Given the wackiness of the housing market, I hesitate to offer my expereince as a former real estate professional and banker but here goes -

What I would often see with FHA loans is a sale price set high enough to cover the seller "paying" the closing costs.  Agents knew which houses would great options for first time homebuyers, ones that could pass the extra inspections and were in that first time buyer price range.    

For example, a house listed at $80,000 would sell at full price to a FHA buyer and the owner would give back $5,000 for closing costs.  A conventional or cash buyer could offer $75,000 and the seller would accept. 

This is what happened when we sold our house, the agent recommended that we priced it at a point that we would take full price offer and contribute to closing costs for any buyer requesting assistance with closing costs.   The price we needed to sell the house (and would have accepted) was a couple of thousand lower.  

The end result is the same, it is just how it is presented on the paperwork.

I mention this because as RE appraiser and later as a banker, I would run up against these types of deals and sometimes there were problems getting comps to show the purchase price in an FHA financing deal was comparable to the market.  In fact, the type of financing (or lack of financing if a cash deal) was one of the disclosures required on appraisal forms when presenting comparables.

Conventional loans with downpayments of less than 20% used to require PMI insurance, which was pricey.  The percentage may have changed.

[Imakcerka]

What about a rent to own? 

[cheapi86]

USDA loans allow you to buy with no money down.  

[cheapi86]

Dbl/triple post

[kitchensqueen]

Just my two cents - but if I were you, I'd wait to save up close to 20% down. The market and economy are so shaky; you want to be sure you've got your finances set for the long haul. And next-to-nothing down mortgages get a lot of people into trouble - you owe more to the bank for a longer period, which just doesn't seem secure. You want to be able to get out from under your mortgage as soon as possible so you're free and clear.

[pitter_patter]

If you live in or near a rural area I would look into a USDA loan.  I have one and it allowed my family to get a wonderful house with an affordable payment.  Our market locally has gone about as low as it will go, at least for my unique neighborhood and home size.  

[nd_deadhead]

My concern is this - if you don't have extra income to put into savings, will you have enough income to pay for all the little (or big) extra expenses of your own home? Even if you find an inexpensive home, you'll still have PMI, property taxes, homeowners insurance, utilities, lawn care, and maintenance (which could be a little or a lot, depending on the age of the house).

As much as I hate to move (so I assume everyone else does too), you might be better off finding another rental, as inexpensive as you can find, and cut your budget to the bone, so you can build up a down payment and an emergency fund. Look at houses in your area, and make sure when you do you ask about the expenses I listed above.

Good luck!

[JElaineB]

Originally Posted by nd_deadhead 

My concern is this - if you don't have extra income to put into savings, will you have enough income to pay for all the little (or big) extra expenses of your own home? Even if you find an inexpensive home, you'll still have PMI, property taxes, homeowners insurance, utilities, lawn care, and maintenance (which could be a little or a lot, depending on the age of the house).

As much as I hate to move (so I assume everyone else does too), you might be better off finding another rental, as inexpensive as you can find, and cut your budget to the bone, so you can build up a down payment and an emergency fund. Look at houses in your area, and make sure when you do you ask about the expenses I listed above.

Good luck!

I totally agree with this. Owing a home is a lot more expensive than renting. Even if the mortgage and the rent are similar you will spend more money each year on all the things the PP listed when you own a home. I strongly encourage you to save more and buy later when you have a lot more money saved.

[Bokonon]

Originally Posted by JElaineB 

Owing a home is a lot more expensive than renting. 

This is not always the case - we don't know what the OP's housing market is like, what she's paying in rent, etc.  

A 20% downpayment in my area would be $80k+.  Buying with 3.5-5% down makes sense for my family's situation because we could spend less on a mortgage per month, plus have the tax benefits of owning, and still have money for repairs and home expenses.  

I do agree that it's not always clear cut which is more advantageous.  It's always wise to research the rental market and recent home sales, plus evaluate one's finances and how they would be impacted by a home purchase.

[chel]

I vote to see if you can get a loan and take it from there.  Personally I think it has gotten very hard to get a loan.

[terese17]

There is a govt agency in Iowa called ECIA that provides a 25% down payment on new construction. So we could get a brand new, even picking out kitchen cabinets, three bedroom home with attached garage and full basement for about 110,000. And this is in a good area of town as well a as well.  I would google it and try to find out if there is a similar program wherever you are.  Also check out www.homepath.com. It is fannie Mae foreclosure listings.  They also have special loans similar to the FHA loans.