How to buy a home when you have little cash

Short on cash? You may still qualify for a home loan. Before shopping for mortgages or homes, it's important to understand potential options for financing a home with minimal cash outlay.

Mortgages: estimating your costs

Buying your first home is an exciting process, and it's easy to overlook important costs associated with mortgage loans. Factoring these costs into your plans can help prevent surprises when your loan closes.

• Budgeting for closing costs: Closing costs occur as part of the escrow or closing process used for approving a home loan and completing the sale and transfer of title to a home from sellers to buyers. Closing costs can vary; plan to pay 3 to 5 percent of your home purchase price for closing costs.
• Comparing mortgage costs: Mortgage quotes provide an estimate of finance charges expressed as an annual percentage of the mortgage amount (APR). Comparing the APR for each mortgage quote provides a more accurate estimate of mortgage costs than comparing mortgage rates alone.

Options for funding your mortgage loan down payment

FHA mortgages: FHA loans are popular with first-time buyers and those who don't have enough for the larger down payment required for most conventional mortgages. You may qualify for a minimum down payment of 3.5 percent if you have credit scores above 580, otherwise you'll need a minimum score of 500 and 10 percent down.

VA loans: Qualified veterans or surviving spouses can borrow up to 100 percent of a home's purchase price. VA-approved lenders can help with determining program eligibility.

State and local housing finance programs: States and communities may offer programs providing first-time buyers with silent second mortgages for funding closing costs and down payments. Programs can vary, but typical requirements include:

• You must occupy the home you're buying as your primary residence
• You must not have owned a home in the preceding three years
• You'll be required to contribute 3 percent or more toward closing costs and your down payment
• Your housing finance program loan will not have to be repaid until you sell or vacate your home.

Cash gifts: FHA allows down payments to be funded by cash gifts from family members and associates; the donors must certify that the funds they're providing are a gift and are not expected to be repaid.

Mortgage lenders and real estate pros can help

Loan officers and real estate agents can help you locate mortgages appropriate to your circumstances; these steps will assist with determining your budget and finding your next home and mortgage.

• Research home prices in areas where you want to buy
• Determine how much cash you'll need
• Compare mortgages, shop mortgage rates, and locate housing finance programs
• Contact a HUD approved housing counselor for finding additional resources.

Taking these steps before searching for your next home saves time and promotes focusing on affordable homes.