- LendingTree.com Shares Top 3 Options When Buying Home with Low Down Payment

Wednesday, 08th February 2012

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LendingTree.com Shares Top 3 Options When Buying Home with Low Down Payment
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LendingTree.com Shares Top 3 Options When Buying Home with Low Down Payment

If you're getting ready to purchase the home of your dreams but don't have the much sought after 20 percent down payment, don't worry - you have options. LendingTree.com shares the following three options available for low down payment alternatives.

1. Private Mortgage Insurance
One option is to obtain a loan with private mortgage insurance (PMI). PMI is extra insurance that lenders require from most homebuyers who obtain loans that are more than 80 percent of their new home's value. In other words, buyers with less than a 20 percent down payment are normally required to pay PMI. PMI enables borrowers with less cash to have greater access to homeownership. With this type of insurance, it is possible for you to buy a home with as little as a three percent to five percent down payment. Rather than waiting years to accumulate a large down payment, you can buy a home much sooner by using PMI. New legislation recently passed allows PMI to be deducted on your tax returns. Be sure to ask your lender about this.

2. Piggyback Loans
Piggyback loans are an alternative to PMI and another option for those who have a low down payment. These are named piggyback mortgages because a second mortgage is "piggybacked" onto the original mortgage. This can be a less expensive option because the homeowner will be avoiding PMI all together. How it works is the original mortgage and the second mortgage is closed simultaneously. The first loan is for 80 percent, the second is often times for five to 10 percent and the rest is paid by the homeowner as a down payment.

3. FHA Loans
For those with less than perfect credit, obtaining a FHA loan may be a good option. The Federal Housing Administration does not fund the home loan, they insure it so your lender can offer you a better deal. This type of loan allows your down payment to be as low as three percent and you can include most of your closing costs in the loan if necessary. The FHA loan program is a great way for homebuyers with a shortage of down payment funds to buy a home.

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