The American Dream Downpayment Initiative (ADDI) was signed into law in 2003. ADDI aims to increase the homeownership rate, especially among lower income and minority households, and to revitalize and stabilize communities. ADDI will help first-time homebuyers with the biggest hurdle to homeownership: downpayment and closing costs. The program was created to assist low-income first-time homebuyers in purchasing single-family homes by providing funds for downpayment, closing costs, and rehabilitation carried out in conjunction with the assisted home purchase.

ADDI will provide downpayment, closing costs, and rehabilitation assistance to eligible individuals. The amount of ADDI assistance provided may not exceed $10,000 or six percent of the purchase price of the home, whichever is greater. The rehabilitation must be completed within one year of the home purchase. Rehabilitation may include, but is not limited to, the reduction of lead paint hazards and the remediation of other home health hazards.

To be eligible for ADDI assistance, individuals must be first-time homebuyers interested in purchasing single family housing. A first-time homebuyer is defined as an individual and his or her spouse who have not owned a home during the three-year period prior to the purchase of a home with ADDI assistance. ADDI funds may be used to purchase one- to four- family housing, condominium unit, cooperative unit, or manufactured housing. Additionally, individuals who qualify for ADDI assistance must have incomes not exceeding 80% of area median income.

For more information, visit HUD: American Dream Downpayment Initiative

If you don't qualify for the government's American Dream Downpayment Initiative, there are private, nonprofit organizations that may help you buy a house with no money down. Most do not have income limits and do not limit the program only to first-time buyers. Downpayment assistance grants typically range from 2% to 7%.

The funds provided by these organizations can be used as a downpayment or to pay closing costs, and because the grant cost is carried by the seller, the buyer receives the money with no further obligation.

There are some limitations (for instance, you must typically use an FHA loan), but if you have been looking for a way to buy a house and the only thing stopping you is the downpayment, these assistance programs may be the key to buying a house with no money down.

Check these links for more information.
Nehemiah Program

AmeriDream

Partners in Charity

Homes for All Program

Downpayment grants aren't the only option for first-time homebuyers. For many Americans, owning a home continues to remain just slightly out of reach. For more and more families, saving the money for a down payment is the biggest obstacle to homeownership. Many people mistakenly believe that you have to come up with a down payment equal to 20 percent of the price of a home.

Traditionally, lenders have required that home buyers be able to make a down payment of at least 20 percent of a home's purchase price to get a home loan or mortgage. Mortgage lenders, however, will grant home loans to qualifying home buyers with a down payment of as little as 3 to 5 percent of the purchase price if the mortgage is insured.

In fact, home loans with down payments of less than 20 percent are becoming increasingly popular. They are called "low down payment mortgages."

This is good news for the millions of home buyers who are finding it difficult to save a large down payment, especially for their first house.

Mortgage Insurance Makes It Possible
Simply put, mortgage insurance protects the mortgage lender against financial loss if a homeowner stops making mortgage payments. Lenders usually require insurance on low down payment loans for protection in case the homeowner fails to make his or her payments. When a homeowner does not make mortgage payments, a default occurs and the home goes into foreclosure. Both the homeowner and the mortgage insurer lose in a foreclosure. The homeowner loses the house and all the money he put into it. The mortgage insurer has to pay the lender's claim on the defaulted loan.

For this reason, it is crucial that the family buying the home can really afford it - not only when they buy it, but throughout the time period of the loan.

Although the cost of mortgage insurance is paid by the home buyer, or borrower, the mortgage insurer works directly with the lender. Mortgage insurance is available to commercial banks, mortgage bankers and savings & loans, all of which offer mortgage loans to home buyers.

Two Choices: Government Insurance and Private Insurance

Low down payment mortgages can be insured in two ways - through the government or through the private sector.

Mortgages backed by the government are insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) or the U.S. Department of Agriculture's Rural Housing Service (USDA-RHS).

The minimum effective down payment FHA requires is less than 3 percent. For single-family homes, there is a limit on the loan amount that varies according to geographic area.

Although anyone can apply for FHA insurance, the other two government mortgage guarantee programs are much more targeted. The VA program is limited to qualified, eligible veterans and reservists. The USDA Rural Housing Service insures loans for the construction and purchase of homes in rural communities. These programs are very specialized, so contact your lender for details.

Obtaining conventional financing is the alternative to obtaining a home loan backed by the government. Conventional mortgages are all home loans not guaranteed by the government, including those guaranteed by private mortgage insurers.

Although both government and private insurance are based on the concept of allowing families to get into homes with less cash down, there are many differences between the two. Often the lender or loan originator will play an important role in suggesting and deciding which insurance is selected.

Private mortgage insurance is available on a wide variety of low down payment home loans and there is no pre-set limit on the loan amount. Although differences such as these may affect whether the lender prefers to work with government or conventional mortgages, your lender will discuss with you which one would be better for your situation.

With the wide variety of loans available, home buyers have the freedom to choose the type of loan that best suits their needs. Early on in the homebuying process, it is a good idea to meet with several lenders to compare the types of mortgages they offer and shop for the best price and terms. Best of all, working with a mortgage insurer can be very easy - whether your loan is insured by the FHA or a private mortgage insurer - because your lender handles all of the arrangements.

By making lending money to home buyers safer, mortgage insurance helps more families get into homes of their own.

Qualifing for a Low Down Payment Loan
Qualifying for a low down payment loan is much like applying for a regular loan.

To be considered for a low down payment loan, you generally need to have:

- Sufficient income to support the monthly mortgage payment.
- Enough cash to cover the down payment.
- Sufficient cash to cover normal closing costs and related expenses (explained below).
- A good credit background that indicates your payment history or "willingness to pay."
- Sufficient appraisal value, which shows the house is at least equal to the purchase price.
- In some instances, a cash reserve equal to two monthly mortgage payments.

Closing costs, or settlement costs, are paid when the home buyer and seller meet to exchange the necessary papers for the house to be legally transferred. On average, closing costs run 2 to 3 percent of the house price. This percentage may vary, depending on where you live.

Closing costs include the loan origination fee (if not already paid), points, prepaid homeowner's insurance, appraisal fee, lawyer's fee, recording fee, title search and insurance, tax adjustments, agent commissions, mortgage insurance (if you are putting less than 20 percent down) and other expenses. Your lender will give you a more exact estimate of your closing costs. You can eliminate the need to pay a year's mortgage insurance premium at closing by choosing a monthly premium program.

Points are finance charges that are calculated by the lender at closing. Each point equals 1 percent of the loan amount. For example, two points on a $100,000 loan equal $2,000. Lenders may charge one, two or three points in up-front costs in addition to the down payment. The more points you pay, the lower your interest rate will be. In some cases, you may be able to finance the points.

- Source: FCIC - How to Buy a House with a Low Down Payment

If you're looking for ways to save money when buying a new home, you may be interested in looking at foreclosures. By combining your downpayment assistance grant with a below-market price for a foreclosure property, you could save tens of thousands of dollars on your first home.

You can learn more about the pros and cons of buying foreclosures and get useful tips by visiting one of the foreclosure listing services on the web. These sites typically give you a free trial membership, as well as providing foreclosure education. Here are some sites to help you find foreclosures in your area and get you started.

Foreclosure.com


RealtyTrac


RealtyStore.com


Bargain Network Homes

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