Most conventional home loans require some form of up-front payment that the borrower has to pay, this is known as a down payment. There are a few loans such as the FHA Home Loan, VA Loan, and USDA Loan that have different minimum down payment requirements as these loans are backed by government agencies.
If you are looking to buy a house in Alexandria, there is a wide variety and prices of homes available, ranging anywhere from $10,000 to $60 million! There are also all types of homes, from modern chic design to one of the narrowest homes in the world known as the Spite House on Queen Street!
In order to determine how much money you need to save, it is important to know the type of mortgage you will be getting and the price of the home. For all examples, the median home price in Alexandria is $565,000.
Conventional Loan
If you decide to get a conventional mortgage with a minimum down payment of 20%, you will need to save at least $113,000 (20% of $565,000. This is quite a hefty sum; however, if you do not have this amount saved up you can choose to provide a down payment of less than 20%,
if you get Private Mortgage Insurance or PMI. Private Mortgage Insurance (PMI) will allow borrowers to put as little as 3% up-front for their mortgage which is $16,950! However, before jumping at this great low down payment deal, it is crucial to read about the additional payments for PMI and how your monthly payments are impacted.
FHA Home Loan
FHA loans are mortgages that are backed or insured by the Federal Housing Agency. These loans are designed for individuals who have not saved enough money for a large down payment and have a lower credit score. The money needed to be saved for these loans depends on your credit score. If you have a credit score greater than 580, your down payment can be as low as 3.5%. This means that you can buy a half a million-dollar property by having only $20k! If your credit score is not as high as 580, but still greater than 500, your minimum down payment will be 10% or $50k for an average property in Alexandria. FHA loans also require you to get insurance in the form of Mortgage Insurance Premium or MIP. Therefore, if you qualify for an FHA loan, you will only need to save up around $20,000 with a reasonable credit score.
VA Loan
VA Loans are mortgages that are backed or insured by the Department of Veterans Affairs. VA loans have strict eligibility and are restricted for service members only, so if you are a veteran, this is one of the best options for you! VA loans do not have a minimum down payment requirement. Therefore, you need to save no amount of money to purchase a home with a VA backed home loan.
Down Payment Assistance
Down payment assistance programs can help you get some money from the government in the form of grants, or low rate loans. There are several down payment assistance programs available in Alexandria such as:
1. Neighborhood Stabilization Program – This is a program that is a joint initiative between the city and non-profit Rebuilding Together which focuses on selling a renovated property to low-income home buyers. You need to be working in Alexandria and have an income of less than 80% of the median income which is approximately $70,000. There are also additional perks such as down payment assistance with a city shared equity loan up to $50,000! If the mortgage interest rate is too high, no need to worry because the program also offers a 1% mortgage interest rate reduction!
2. Set-aside Homeownership Program – This program provides units in newly constructed homeownership developments and is catered towards first-time buyers. The units are affordable and not available for resale, and some income requirements need to be met. Your income cannot be greater than 100% of Annual Median Income (AMI) which in Alexandria is $87,319. There is down payment assistance in this program too, with a similar structure of city shared equity up to $50,000. There is also the additional benefit of a 1% mortgage interest reduction.
3. Resale Restricted Homeownership Program – Certain restricted units cannot be purchased without the city's help, these specific units can be purchased by low-income earners with the city’s assistance. The program focuses on first-time buyers and again has an income requirement that has to be less than 100% AMI which is $87,319. The city will also enter into a shared equity loan up to $50,000 to assist with the down payment and even reduce mortgage interest rate by 1%.
In Conclusion, there are several options out there to help reduce the amount of money that you need to save for a home. In Alexandria, if you qualify for certain loans, you may only need to save around $20,000 or less — and if you are a veteran, no savings are required! You can first consider different types of mortgages that have varying down payment requirements and then you can find an appropriate down payment assistance program. There are also several excellent tools to help you determine what is the minimum down payment you will be required to pay up-front.
