Buy Foreclosed Homes With Low-down Loans

There are several low-down loan options that you can use to buy foreclosed homes.

As might be expected, the most popular is the FHA loan, which has become the most used type of loan since 2008 when banks rejected a lot of home loan applications. Its minimum down payment requirement is only 3.5 percent. Today, around 33 percent of all home loans are backed by the FHA. However, because of the rising losses that the FHA has been suffering, it has increased its upfront mortgage premium to 2.25 percent, in addition to the annual premium equivalent to 0.55 percent of the loan amount.

Another low-down loan is a conventional loan from a lender that accepts private mortgage insurance. If you buy a PMI to cover the losses of the lender in case of default, you are allowed to make a down payment lower than the standard 20-percent down. The advantage of a PMI over a FHA insurance is the opportunity to cancel the PMI if the required down payment level has already been reached. The FHA insurance must be paid over a period of five years or more.

If you are with the U.S. military, you can buy foreclosed homes with a no-down VA loan or a loan from the Navy Federal Credit Union. The VA makes guarantees to your lender so you do not need to pay any down. The standard VA funding fee, which is about 2.15 to 3.3 percent of the loan amount, can be rolled into the total home loan amount.

The Navy Federal Credit Union offers 100-percent financing for home purchases by qualified members, but only for primary homes.

The home loan offered by the Department of Agriculture is also a no-down loan, but the property must be located in an area considered rural by the department. Do not be discouraged, as there are neighborhoods near towns that are considered rural.

Check also if your city or county has affordable home ownership programs. The federal government has given grants to local governments so that more people can buy foreclosed homes and help contain the foreclosure problem.

by: Joseph B. Smith

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