One of the best programs with a very low down payment is the  Federal Housing Administration (FHA) loan.  FHA insures loans on single family and multi-family homes in the United States and its territories. It is the largest insurer of residential mortgages in the world, insuring tens of millions of properties since 1934 when it was created.   It is a government backed loan which provides insurance to lenders to reduce risk if a borrower defaults on a loan.  If a borrower has had any bankruptcies, short sales, and/or foreclosures, you can still qualify for an FHA loan provided certain guidelines are met.

Advantages

Low down payment of 3.5% of the sales price

Down payment can be gifted

Qualifying ratios are generous

Can have less than perfect credit

Can generally qualify for more home

Seller can contribute up to 6% of sales price for closing costs

Allows a co-applicant to help you qualify even if the person does not live in the home

Loan limit is $726,525 (King, Pierce, and Snohomish Counties)

Disadvantages

Must pay a one time upfront mortgage insurance premium of 1.75% of the loan amount.  This amount can be wrapped into the loan, paid up front, or negotiate the purchase contract to have the seller pay the upfront mortgage insurance.

Must pay a monthly mortgage insurance premium. The premium depends on the size of the loan, how much is the down payment, and the length of the loan.

Mortgage insurance can translate up to an additional 1.35% onto the interest rate

Monthly mortgage insurance generally runs the length of the loan.

Qualifications

Have steady employment for two years. Does not necessarily have to be with the same employer.

If a borrower recently received a technical or university degree, once paystubs have been generated for a month with a new employer and provide evidence of education in the same field of employment, it’s possible to qualify for a home loan immediately.

Have a credit score as low as 580. With today’s tighter lending criteria, it is difficult to find lenders who will issue a loan lower with a credit score than 620. Also, the lower the score, the more costly the loan will be to administer.

Must be primary residence for primary borrower

Have a minimum down payment of 3.5%. This can be gifted by a family member

Maximum loan amount of $667,000 in King and Pierce County for a single family home. It can be higher for duplex, triplex and fourplex.