Finding a Home Mortgage with Limited Funds

If you can't afford to buy a new home because of a lack of down payment or insufficient monthly income, you do have one thing in your favor. Lenders are just as eager to generate loans as you are to move into a new home. As a result, they often create flexible, innovative ways to create new homeowners.

Analyze your budget. If you have a low monthly cash flow, a typical mortgage payment may seem unrealistic. In this case, you need to carefully analyze your finances and find out exactly how much you can actually afford to spend on a monthly basis. Then try cutting expenses to free up cash.

Find loans with low monthly payments. Now that you've established what you can comfortably pay, you can begin the process of shopping for loans. To get an affordable monthly payment, you should look for mortgage loans with the lowest interest rates and longest terms. Check the Internet for pricing, and call local lenders. One possible option is to pay "points" on your mortgage to buy-down your interest rates. A point is 1 percent of your loan's overall amount, and you can use it to buy a lower rate- and subsequently a lower payment.

Home mortgage options

If you don't have much money for monthly payments or a down payment, there are lending options:

Interest-only mortgage: For this loan, your payments during an introductory period (typically the first five to seven years) are low and applied directly to your interest. Eventually, your monthly payment amounts will increase and be applied to principal. Be careful with these types of loans, however. Some are structured as "balloon" mortgages, in which the entire payment is due after those first years of interest-only payments. Make sure that you understand the specifics before you sign on the dotted line.

Piggyback loans: For borrowers who can't afford to make a down payment, there are lenders who provide "piggy-back loans," or 80-10-10 financing. For these loans, 80 percent of the loan is borrowed on a first mortgage, followed by 10 percent borrowed on a second mortgage with a higher rate. You would provide the remaining 10 percent down. There are lenders who will even provide 80-15-5 financing, and some even 80-20-0 loans. Shop around, but don't be surprised at the high interest rates on those second mortgages.

As you can see, there are plenty of innovative ways to buy that house. The American Dream can become a reality with some good old-fashioned American ingenuity involving smart budgeting and the right loan package.