Inflated property prices across the United States have left would-be homeowners wondering how to get a mortgage without a huge deposit. Thankfully, there are a handful of helpful programs in Dallas, Austin, Houston, and all over Texas that can help people buy a home with little to no money down. Below, we’ve listed 11 ideas that may help you qualify for a mortgage even if you have a small deposit.
11 Ways To Get a Mortgage With a Small Deposit in Dallas, Austin, and Houston
Each of these options comes with its own set of terms, conditions, and eligibility criteria. These huge lists of things to consider are enough to make your head spin, so we’ve listed the most important factors to qualify for each program.
Although these loans are designed to help those with small mortgage deposits, those with more money to put down are more likely to be approved for a good mortgage deal. A healthy credit score will help, too. Ultimately, the decision will be based on your chosen mortgage lender’s decision-making process.
1. FHA Loans
FHA loans are backed by the Federal Housing Association. This government backing provides extra security for mortgage lenders, making them more willing to approve mortgages for first-time buyers with small deposits.
You’ll only need a 3.5% deposit if your credit score is above 580. If your credit score is between 500 and 579, you can still be approved for an FHA loan with a 10% deposit. These loans are only available for first-time buyers or those who haven’t owned a home for the past three years.
2. Guarantor Mortgages
With this type of mortgage, a parent or close family member will act as a guarantor, using their savings or property as collateral for your loan. Some guarantor mortgages will even allow you to borrow 100% of your property’s value and use your parent’s property as a deposit.
Your guarantor will need to have a good credit score, a lot of savings, or a property of their own. More importantly, they’ll need to be prepared to potentially lose their home if you fall behind on your mortgage repayments!
3. Joint Mortgages
Most lenders will let up to four people sign their name on a joint mortgage, although it’s more common for no more than two people to sign their name on one. Lenders consider the combined annual income of all borrowers with their names on a joint mortgage, so it’s easier to be approved for a large loan. Perhaps you can all chip in on a deposit, too.
There are risks to sharing a mortgage. You’ll all have to agree on a sale, for example. Plus, if one homeowner decides to stop making mortgage repayments, you’ll still be held equally responsible for the full amount owed.
4. Fannie Mae Conventional Loans
Fannie Mae loans are backed by the banks and mortgage lenders themselves. You can be eligible with a deposit as small as 3% of the property value.
You’ll need to be a first-time buyer with a credit score of at least 620 to qualify. Mortgage insurance is essential to qualify too, but you can cancel it once you have 20% equity in your property.
5. Fannie Mae HomeReady Loans
HomeReady loans have lower mortgage insurance costs than conventional Fannie Mae loans, and you don’t have to be a first-time buyer, either. You’ll have to complete a homeownership education course to qualify, though.
The minimum deposit size of 3% and the regulations around mortgage insurance are the same as the Fannie Mae conventional loans.
6. Freddie Mac Home Possible Loans
These loans are also backed by the banks themselves. They also come up with a minimum mortgage deposit of 3%. PMI is compulsory with these loans, too, although it can be canceled once you’ve built 20% equity once again.
There are some important differences between Freddie Mac and Fannie Mae loans, though. Most notably, you’ll need to be earning less than 80% of the median income in the area you’re planning to buy a property. However, this rule doesn’t apply if the area qualifies as an underserved region for Freddie Mac mortgages.
7. Home Renovation Loan Programs
There is a range of programs that will give borrowers favorable terms when they’re planning to buy and renovate a home.
This includes the HomeStyle loan from Fannie Mae, which is available to first-time buyers with a minimum down payment of 3%. Other popular options include a CHOICERenovation loan from Freddie Mac or an FHA-backed 203(k) loan.
8. USDA Loans
USDA loans are available to those buying homes in designated rural areas of the United States. This isn’t just for those living on a farm; there are normal houses and apartments in sub-urban areas available too. They’re available with zero money down, although you’ll need a decent annual income and a good credit score to qualify.
If your heart is set on an apartment in the center of downtown Austin, Houston, or Dallas, this loan won’t be suitable for you. However, there are plenty of deals available in rural Texas. You can visit the USDA website to learn more about how to get a mortgage under these terms, as well as what parts of Texas are considered designated rural areas.
9. VA Loans
VA loans can help active or retired members of the U.S. military and their spouses obtain a mortgage with little or no money down. Although the federal government backs these loans, they can be obtained by private lenders.
These loans have lower interest rates and more generous limits on a buyer’s debt-to-income ratio, but you’ll still need to prove that you can afford the repayments.
10. Good Neighbor Next Door Loan
This program allows you to buy a home at a 50% discount if you’re a school teacher, firefighter, law enforcement officer, or emergency medical technician. Better yet, the minimum deposit is a mere $100.
These loans are only available on properties in “revitalization areas” approved for the program, and you’ll have to live there for at least 36 months to receive the discount. The last time we checked, there were plenty of properties in Texas available to buy with a Good Neighbor Next Door Loan. You can find them by checking the U.S. Department of Housing and Urban Development’s (HUD) dedicated website for this program.
11. Down Payment Assistance
Down payment assistance programs vary depending on where you’re trying to buy a property. Some programs will offer you a cash grant to put towards your mortgage deposit. Others will allow you credit to put towards your closing costs, a reduced interest rate on your mortgage repayments, or tax breaks on your home purchase.
The HUD has an online list of down payment assistance programs available in each state, and you can expect mortgage advisors to have expert knowledge on this topic too.
There are some incredibly useful down payment assistance programs available in Texas, which can help you get a mortgage even if you have little or no money to put down as a deposit. Get in contact with our experts at Guaranteed Rate Affinity to discuss your options regarding how to get a mortgage.