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Not having enough saved to fulfill a down payment requirement is no longer a reason to postpone home ownership. That’s because how much you need to put down varies based on your credit history and selected loan program. Let’s not forget there are also many local, regional, and national assistance programs available to you.

If you’re interested in buying a home — without having to put 20% down — here are a few things worth looking into:

Loan programs that allow less than 20% down

The government backs FHA loans, and they require as little as 3.5% down.

Fannie Mae’s HomeReady® and Freddie Mac’s Home Possible® mortgage program only require a 3% down payment.

If you’re active duty, former military, or even a military spouse, the VA loan program allows you to buy a home with no money down and no mortgage insurance. The VA does charge one upfront cost in the form of a funding fee, which cannot be avoided unless you experienced a service-connected disability.

If you're located in a rural area, you may benefit from a USDA loan. It’s a program designed to help farmers, ranchers, and home buyers in less populated areas of the country with mortgage assistance, and it does not require that you make a down payment.

Down payment assistance programs

Colorado Housing and Finance Authority (CHFA) can help Coloradans get into a house for as little as a $1,000 down payment. Access to CHFA advantages is dependent on household income (which is determined at the county level and by the size of household).

The Chenoa program specializes in down payment assistance solutions when paired with FHA loans. Through approved lenders, the program may provide grants and second mortgages of up to 3.5% of the home purchase price.

Teachers, law enforcement officers, EMT's, and firefighters, may qualify for special mortgage assistance through HUD programs. Check HUD's website for more specific guidelines and requirements.

Gifted money

It’s not uncommon for home buyers, especially millennials and first-time home buyers, to use gift money toward a down payment. The amount you’re eligible to receive depends on your loan program. There’s a good chance you may have to come up with your own money to help cover the cost of down payment.

If you’d like to use gifted money toward your down payment, be sure to let your lender know so you can include a gift letter.

Use a down payment calculator

Not ready to speak with or shop lenders? It’s ok! There are tools available online — like mortgage calculators —  that can help you better understand how your down payment will affect your overall mortgage payment.

Avoid these common home buying pitfalls

There is nothing more embarrassing than making an offer, then arriving at the mortgage company to find out you don’t qualify after all. As a result, mortgage pre-approval is crucial. Don’t forget to stay within your price range and consider added expenses.

A few other things to consider

If you put less than 20% down, you’re likely going to pay private mortgage insurance (PMI), which can add a substantial sum to your monthly costs. It’s typically a few hundred dollars a month. Keep in mind PMI can be dropped once you hit a particular loan to value (LTV), but mortgage insurance with an FHA cannot be dropped.

One of the biggest misconceptions that can hurt new home buyers is the belief they don’t need to bring money to closing. More often than not, you'll have to meet a requirement. So it is highly recommended that you speak with a loan officer and fully understand costs outside of the down payment before you fall in love with a home.

It's important to remember that expenses continue even after you receive the keys. Buyers may get into trouble when they neglect to consider the additional costs that home ownership entails, such as landscaping, window coverings, and necessary repairs.

As mortgage rates continue to drop, it's becoming even more affordable to buy a home. But is a low down payment the right approach for you? One way to know for sure is by calling the salary-based mortgage consultants at American Financing for a free mortgage review.

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