Purchasing a home with a low down payment is important for a number of reasons, including the buyer's ability to have extra cash left over for closing costs, decorating expenses, upgrades and/or other essentials needed to turn their new house into a home. Thanks to the level of competition between mortgage lenders, it's now easier than ever to buy a home with a low down payment.

First-Time Homebuyers

There are a lot of perks to being a first-time homebuyer, including the ability to get in the door with a low down payment. Many lenders will ask for a down payment as low as five percent (three percent for FHA loans) to those looking to purchase their first home.

A first-time homebuyer is someone who has rented their previous home(s) or has never purchased a house on a permanent foundation. Individuals who have owned manufactured homes may also be eligible for a first-time homebuyer loan, but the final decision is up to each individual lender.

FHA Loan

This type of loan is guaranteed by the Federal Housing Authority (FHA) and allows for a smaller down payment than many conventional loans. In addition to offering down payments as low as three percent of the total purchase price, FHA loans often carry lower interest rates and are easier to qualify for. This type of loan is ideal for first-time homebuyers, individuals with past credit problems or even those who wish to purchase a second home.

Provide Your Land As Collateral

If you own the land that you intend to build on, many lenders will use the land in place of a down payment. In other words, you build a house on the land that you already own, and the lender gets both if you default. This is why individuals who own land often choose to build, while using the lot in place of a big down payment. In addition, many lenders are more willing to approve a loan if the land is already owned by the buyer.

Owner Financing

When a seller lists their home, they have the option of considering owner financing. In this situation, a buyer provides a down payment to the seller and signs an agreement to pay for the home (plus interest) over a preset number of years. Owner financing typically requires a lower down payment, which can be any amount that the buyer and seller agree to. Because there is no bank qualifying and no credit check, a seller can extend the offer on any terms that they wish.

Buying Your First Home: Seven Tips For First-Time Home Buyers

Now that you've made the decision to purchase your first home, a hearty congratulations is in order! Becoming a homeowner, especially for the first time, can stir up some feelings of anxiety and excitement. With the knowledge that you gain through individual research and the help of your REALTOR®, you will soon begin to feel like a seasoned house hunter.

Tip # 1: Do Your Homework

Did you know that there are a number of incentives available to first-time home buyers? Everything from a 3-5 percent down payment and interest rates as low as 5.75 percent are just a few of the ways that lenders help to make the dream of home ownership into a reality for many. An FHA loan, for instance, is especially appealing to first-time home buyers. The best way to find out what's available, in terms of down payment requirements and interest rates, is to do your homework by comparing offerings from various lenders.

Tip # 2: Save Money

Although many loans are geared toward offering lower down payments to first-time home buyers, it's important to save as much money as possible so that you will have enough to provide an earnest money deposit (if applicable), pay for closing costs and still have the funds to furnish and decorate your new home.

Tip # 3: Get Your Credit Profile In Order

When you apply for a loan, the lender will access a copy of your credit report and will use the information to determine your creditworthiness and/or interest rate. This means that you will want to make sure that the information contained in your credit report is accurate and up-to-date. You can do this by requesting a copy of your file from each of the three major credit reporting agencies - Experian, Equifax and TransUnion.

In addition to past credit history, lenders will also look at your current debt ratio in order to determine whether or not you can afford the home. This means that you may want to consider paying down some of your existing credit card debt and avoid taking on any new debt before applying for a mortgage.

Tip # 4: Start Your Search

With the World Wide Web being what it is today, it's no surprise that many potential home buyers start their search online. A Realtor's Web site is designed to not only list real estate, but also to educate a buyer as they move through the process of searching for a new home. In addition, the internet offers a way for consumers to browse through color photos and virtual tours, both interior and exterior, along with information pertaining to the homes themselves. The convenience of being able to find a home that you like without having to wait is just one of the many benefits to shopping for a house online. When you are finally ready to meet with a REALTOR®, you will already have one or more prospects in mind.

Tip # 5: Have Patience

Perhaps you will find the perfect house this week, or maybe it will take a little longer. Some buyers find exactly what they are looking for right away, while others have to do a little more searching to find their dream home. As a first-time home buyer, it's a good idea to begin the process with an understanding that good things really do come to those who wait. You may see a number of homes, take numerous photos and may even make an offer or two, but patience may very well be the key to finding your new home.

Tip # 6: Take Notes

If you see a lot of homes, it will be impossible to remember the features of each. For this reason, you should consider taking a notebook and writing down each unique or defining aspect that you like or dislike about a particular house. This information, along with any photos that you take, will help you greatly when it's time to make a choice.

Tip # 7: Don't Settle

A home is a big investment and it could, quite possibly, be the largest you will ever make. For this reason, along with the fact that you will be living in the home every day, make sure that you get what you want. There could be an instance where you need to make some type of compromise, but you may want to avoid choosing something just because it's within your price range or you feel as though it's your only option. New houses are placed on the market every day and, as a buyer, the next one listed may just be your dream home.

Buying a home can be both exciting and stressful but, for those with past credit problems, the process may also seem intimidating. The good news is that many lenders have adapted to the idea that many hopeful homeowners simply need a second chance, which means that past credit problems no longer have to define your future.

Credit Blemishes

When life unexpectedly takes a turn for the worst, it's not always possible to come out without a few bumps and bruises. Every day, people are faced with late or missed credit card payments, mortgage foreclosures, bankruptcy proceedings, auto repossessions and even civil judgments that will affect their credit reports for years to come. Whether it's from a job loss, injury or just a simple case of temporary hardship, credit blemishes are often a part of life. The good news is that they no longer have to prevent you from becoming a homeowner.

Give Yourself A Little Credit

After experiencing a credit problem, most lenders will want to see an attempt to rebuild your credit through a steady payment history with a new account. This can be accomplished by applying for a credit card and maintaining a responsible use of the account. If you aren't approved for an unsecured card, you can always apply for a secured credit card. Either will rebuild your credit over time and will help to show lenders that your past credit problems are just that - in the past.

Clean Up Your Credit Report

Before applying for a home loan, make sure that you check your credit report from each of the three major credit reporting agencies. Every 12 months, consumers can request a free copy of their credit report from Experian, Equifax and TransUnion. If anything is incorrect or found to be inaccurate, filing a dispute with the credit reporting agency can help to get the information corrected before speaking with a lender.

When you apply for a home loan, the lender will access your credit report for the purpose of determining your creditworthiness. In an effort to ensure that you have the best possible chance at being approved for the loan at the best possible interest rates, making sure that your credit report is accurate is a must.

Save Up For A Down Payment

Some homebuyers often qualify for a mortgage with down payments as low as five percent (three percent for FHA loans), but those with past credit problems may be required to shell out up to 35 percent or more for a down payment on their new home. A buyer who pays a larger down payment obviously has more vested interest in the home and may, thereby, be less likely to default on a loan. If you have past credit problems, check with your lender about specific down payment requirements and start saving!

Creative Financing Options

If you've exhausted all of your conventional efforts and are still turning up empty, don't give up just yet. Alternative financing is an option that many homebuyers use to purchase a home. Your REALTOR® can provide you with details regarding any lease purchase and/or owner financing properties, which may require no credit check, no bank qualifying, a low down payment and competitive interest rate options.