Down Payment Options

A myth to buying a home is that you must have a down payment equal to 20% of the purchase price. Today there are many alternative loan options that require small down payments or none at all. Private mortgage insurance (PMI) is usually required for conventional loans (non-government) that require less than 20% down payment. PMI is paid monthly and depending on the loan can be removed once there is 20% equity earned in the home.

Many mortgage loans are given through government agencies when there is little or no down payment. The Federal Housing Administration (FHA), a branch of the United States Department of Housing and Urban Development (HUD), has many loan options and assistance programs. There are also loans available through the Veterans Administration (VA), Rural Development Services, Fannie Mae and Freddie Mac.

State and community based programs are also an alternative to providing a traditional down payment. Research what state programs are available along with county, city or individual community programs. Don't forget about nonprofit assistance agencies such as Habitat for Humanity.

If a loan requires a small down payment another option for coming up with the money is pulling funds from your IRA or 401(k). The government does not penalize first time home buyers for using up to $10,000 out of an IRA.