Homebuyers with little money for a down payment are finding more home loans available for a low down payment or even no down payment.
The Federal Housing Administration, or FHA, insures loans with small down payments, and private mortgage insurers have relaxed their down-payment requirements. It's even possible to get a mortgage today with no money down. The nation's biggest credit union offers "zero-down" mortgages. The Department of Veterans Affairs, or VA, and the Department of Agriculture, or USDA, guarantee home loans with no down payments.
Following are a few options for borrowers seeking low-down-payment and zero-down-payment home mortgages.
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No down payment: VA loan
The VA guarantees purchase mortgages with no required down payment for qualified veterans, active-duty service members and certain members of the National Guard and Reserves. Private lenders originate VA loans, which the VA guarantees. There is no mortgage insurance. The borrower pays a funding fee, which can be rolled into the loan amount.
For purchase and construction loans, the VA funding fee varies, depending on the size of the down payment, whether the borrower served or serves in the regular military or in the Reserves or National Guard, and whether it's the veteran's first VA loan or a subsequent loan. The funding fee can be as low as 1.25% or as high as 3.3%.
For 1st-time purchasers making no down payment, the funding fee is 2.15% for members or veterans of the regulator military, and 2.4% for those who qualify through service in the Reserves or National Guard.
No down payment: Navy Federal
Navy Federal Credit Union, the nation's largest in assets and membership, offers 100% financing to qualified members who buy primary homes. Navy Federal eligibility is restricted to members of the military, some civilian employees of the military and U.S. Department of Defense, and family members.
The credit union's zero-down program is similar to the VA's. One difference is cost: Navy Federal's funding fee of 1.75% is less than the VA's funding fees.
No down payment: USDA
The USDA's Rural Development mortgage guarantee program is so popular that it has been known to run out of money before the end of the fiscal year.
"That's the cat's meow, my favorite loan program," says Jeff Tufford, mortgage consultant for Epic Mortgage Group in Grand Blanc, Michigan.
Some borrowers are surprised to find that Rural Development loans aren't confined to farmland.
"It's not all rural," Tufford says.
The USDA has maps on its website that highlight eligible areas. In addition to geographical limits, the USDA program has restrictions on household income, and it is intended for first-time buyers, although there are exceptions.
The USDA mortgage comes from a bank, and there is no mortgage insurance. Instead, the USDA levies a 2% upfront guarantee fee, which can be rolled into the loan amount, and an annual guarantee fee of 0.5% of the loan balance.
Low down payment: Mortgage insurance
Qualified borrowers can make down payments as low as 3% with private mortgage insurance, or PMI. For most borrowers, PMI costs less than FHA mortgage insurance. But PMI has stricter credit requirements.
PMI has another edge over FHA: Once your mortgage balance is under 80% of the home's value, you can cancel PMI. You can't get rid of FHA insurance unless you refinance into a non-FHA loan.
Low down payment: FHA
With a minimum down payment of 3.5%, the FHA is the low-down-payment option that's available to people with imperfect credit histories.
The FHA charges an upfront premium of 1.75% of the mortgage amount. On a 30-year loan with the minimum down payment, there's an annual premium of 0.85% of the mortgage amount, or $850 a year for each $100,000 borrowed -- about $71 a month.
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