How one homeowner got a home with a $4,000 down payment

Ashley Schwartau was tired of living with her parents. She lived in their Nashville, Tennessee home for three years to save money for her own place.

"I didn't really want to go rent a place," says Schwartau. "I could get a house with a mortgage cheaper than renting an apartment," she says. "Houses in this area that I wanted to move into are priced really, really low - in the low $100,000s."

Living with her parents paid off, as the 29-year-old graphic designer bought her first home in February 2012. The best part? She was able to do so with a low 3.5 percent down payment. Read on to see the details of how she got a home with very little down.

Finding the Perfect Home

Schwartau started looking at homes to buy in October 2011. Most of the homes she viewed were foreclosures that required remodeling, but a little yellow house stood out as quaint and perfect for her. It was in an older neighborhood that was about 15 minutes from downtown Nashville.

Built in 1952, the 1,500 square feet house is comprised of three bedrooms and 1.5 baths - perfect for her and her fiancé.

She wanted a three-bedroom home so both she and her fiancé could have home offices. She works from home and runs the graphic design department for her father's video/e-learning business.

The home was also recently remodeled by a real estate agent who flipped homes, which was a huge plus for Schwartau. He remodeled the kitchen into a modern space with new appliances. He also added a sunroom built on top of the home's wooden deck.

"The one thing I love with the addition of the sunroom is that he left the brick wall in the master bedroom which is actually the outside of the home," she says. "It's really neat. We painted it red."

The other selling points of the home were the big backyard, which is a half acre, as well as the short drive to downtown Nashville, where all the restaurants, bars, and Schwartau's friends' homes are located.

"I didn't want to be too far from downtown," she says.

One downside to the home is that it's close to the airport, but even that isn't a huge concern for Schwartau.

"The insulation in the home is very good, and we don't hear the planes when we are inside. We love it here," she says.

The Loan Schwartau Signed

Schwartau's yellow home was listed at $127,000, but the seller accepted her offer of $115,000 on the condition that she take the house as-is, with no remodeling requests.

Schwartau decided to roll the closing costs of $4,000 into the mortgage, making her total loan amount $119,000.

After going over her mortgage options with her loan officer,  Schwartau decided on a Federal Housing Administration (FHA) loan at 3.75 percent and a 30-year term. Because FHA loans require only 3.5 percent down, Schwartau's total down payment on her $119,000 loan was just $4165.

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"I would have had to have at least 10 percent down for traditional mortgages," she explains. "That would have been all of my money. I wouldn't have been able to buy a lawnmower or anything."

And while she could have paid more toward the down payment, she decided to keep some cash in reserves for new furniture and remodeling.

All things considered, Schwartau's total monthly mortgage payment is $845, which includes:

• Principal and Interest: $540
• Property Insurance: $60
• County Tax: $135
• Private Mortgage Insurance: $110

When her budget allows, Schwartau tries to pay a little more each month toward the principal so she can drop the private mortgage insurance once she reaches the 20 percent threshold. PMI is charged by the lender if the homeowner does not put 20 percent down.

How She Got the Loan

Schwartau says that she had quite a bit of credit card debt from college, which she knew would work against her during the loan qualification process.

As a result, "In 2011, I paid down most of my debt. Thought I should be saving for a down payment. So I did," she explains.

Paying her credit card debt down also helped her credit score jump to a healthy number in the 700s, from 650. She can't remember what her exact credit score was, but says it was well above the 620 that her lender required for the FHA loan.

Lowering her debt-to-income ratio was also an important factor in getting approved for the loan.

"I needed to make sure my debt-to-income ratio was less than 31 percent since that's what FHA required of me," she says.

She reduced her debt-to-income by paying off her car in 2011, and getting her credit card debt down to just a couple of thousand by the time she applied for the loan.

In addition to getting her finances in order, Schwartau also had to have an FHA inspector assess her home.

"You have to have an FHA inspection done to get the FHA loan," she explains. "Here's the weird thing about the FHA inspection. I wasn't here for it, and they only inspected the outside of the house. They just walked around the property and looked for key things like roof age, foundation problems, termites and more."

As a result, Schwartau also had to have another inspector come to inspect the inside of the home, too.

If her home assessment was lower than what she was taking out in the FHA loan, she would have been denied the loan. Luckily, the FHA inspector assessed the house at $121,500, and that allowed her to get her FHA loan for $119,000.

Final Thoughts

Schwartau and her fiancé are getting married in September. With both of them paying the mortgage and insurance, they're feeling good about their financial state as they prepare for their marriage.

"My monthly bill is an amazing number," she says. "My fiance used to live in a two-bedroom crappy apartment and he paid $800 a month. For the same amount, we have a house and something to call our own."

She adds that even though there are a ton of costs associated with buying a home, there's satisfaction knowing they're homeowners.

"This is our home, and we don't have to move out in a couple of years when they raise the rent or whatever," says Schwartau.