For many home buyers in Oregon, the down payment is the biggest obstacle to homeownership. That’s why so many buyers seek low-down-payment mortgage loans when buying a house. This article explains some of the ways you can get a low down payment in Oregon, and how you might be able to obtain some of the money from a third-party source.
Low Down Payment Mortgage Options in Oregon
You don’t necessarily need a 20% down payment to buy a house. That’s a common misconception. In fact, there are several ways to get a low down payment when buying a home in Oregon. This is true for first time and repeat buyers alike.
Here are some of the ways you could get a low down payment on your mortgage loan.
Federal Housing Administration (FHA): Many home buyers in Oregon choose the FHA loan program because it offers a relatively low down payment of 3.5%. Specifically, that’s 3.5% of the appraised value or purchase price, whichever happens to be less. Another benefit of using the FHA loan program is that it allows for gift money from third-party donors. This means someone else could contribute toward your down payment expense. We will talk more about these gifts in a moment.
Conventional loan with 3% down: A conventional mortgage loan is one that is not insured or guaranteed by the government, which separates it from the FHA program mentioned above. In previous years, the minimum down payment for a conventional home loan in Oregon was typically 5% or more. But we are seeing new mortgage products coming onto the market, some of which offer a low down payment of 3% for Oregon home buyers. That’s because Freddie Mac and Fannie Mae (the government-sponsored enterprises that buy loans from lenders) both allow for 97% financing.
VA loan program with 100% financing: There are quite a few military members and veterans living in Oregon, and many of them could get a low down payment on a home loan through the VA program. This program completely eliminates the need for a down payment, by offering 100% financing to eligible borrowers. If you meet the specific requirements for this program, it’s definitely worth considering. It’s one of the best ways to get a low down payment in Oregon, and usually has the added benefit of no mortgage.
Getting Financial Help from Family, Friends, Etc.
Getting financial help from a family member or friend is another way to lower your down payment expense when buying a home in Oregon. Many different mortgage programs allow for third-party contributions. That goes for FHA as well as conventional home loans.
The process here is fairly straightforward. You would check with your lender to see what your options are for down payment gifts. Depending on the program you use, the money could come from a family member, a close friend, or even an employer.
Next, the donor would provide you with the funds, usually in the form of a check that gets deposited into your bank account. The person donating the money must also write a letter stating that they do not require or expect any form of repayment.
Your Loan Might Require Mortgage Insurance
If you use a low down payment loan program in Oregon, you will probably have to pay some kind of mortgage insurance. These policies protect lenders from losses relating to default, and they are generally required whenever the loan-to-value ratio exceeds 80%. In other words, if you use a mortgage loan that accounts for more than 80% of the home’s value, you will probably have to pay insurance on it.
But there is a clear trade-off here. If it weren’t for the mortgage insurance industry – and the government insurance that’s provided through the Federal Housing Administration – the average home buyer would have to wait longer and save more money in order to buy a house.
Mortgage insurance is what enables low down payment options for home buyers in Oregon. For many borrowers, the opportunity to put less money down more than makes up for the relatively small cost of mortgage insurance. Still, it’s something to be aware of, since it can increase the size of your monthly payments.
Note: This is not an exhaustive list of mortgage programs and low down payment options for Oregon home buyers. There are far too many financing programs available to mention in one article. Our goal is to give you a basic overview of mortgage options that offer a relatively low down payment.
Need a loan? Please contact us if you would like to learn more about your financing options when buying a house in Oregon. We would be happy to answer any mortgage-related questions you have, and can also provide you with a rate quote.