FINDING LOW DOWN PAYMENT OPTIONS FOR HOME LOANS
Mortgage rates are at the lowest point in almost two years. That means it costs less to buy a home than it has in recent history, and a lot of people are trying to take advantage of the great savings. For those still trying to decide if they should rent or buy, the dynamics are changing.
Along with super low interest rates that save home buyers thousands over the course of a loan, many lenders are making it easier than ever to get a home loan. Along with relaxed requirements, many mortgage lenders have low down payment options that let a home buyer get into their home at a much more affordable rate.
In just the last 12 months, lenders hare helped home buyers by lowering the minimum credit score needed for acceptance on the popular low down payment FHA loan and both Fannie Mae and Freddie Mac have brought back their 3% down programs known as Conventional 97.
Some home buyers can qualify for even better programs through the VA or USDA rural housing loan program. In order to qualify for a 100% loan that doesn’t require any down payment at all buyers or their family members must have served in the military or the property they are buying must meet the U.S. Department of Agriculture’s description of rural housing. For veterans, the VA loans are a fantastic way to get into a home affordably. The USDA’s rural loan is available to everyone buying in the complying areas. Some suburban homes can even meet the standards for USDA loans when they are in low population areas.
FHA LOW DOWN PAYMENT FACTS
One of the most popular low down payment options is the FHA loan. That is simply because home buyers only have to meet standard FHA requirements to be qualified for the loan. It doesn’t matter if the buyer has served in the military or where the home is located. Since the FHA, which stands for Federal Housing Authority, is not a lender in itself, but a backer of loans, home buyers can apply for an FHA loan with any participating lender.
The FHA began as a post-depression relief program to once again let people get the money they needed to buy a home. Most banks, still reeling from the effects of the depression set extremely high loan requirements that the average person could not meet. Enter the FHA. They promised banks that the loans would be insured against default as long as the lenders made sure the home buyers met the very minimum requirements set forth by the FHA for approval.
These requirements are known as the FHA mortgage guidelines. FHA loan applicants must be able to prove employment and income. They have to live in the home they are buying, and all FHA loans must have a mortgage insurance premium included in the monthly payments.
Down payments on these FHA loans can be as little as 3.5%.
CONVENTIONAL 97 LTV FACTS
In contrast, the lending industry developed its own low down payment option for home buyers called the Conventional 97 LTV. It is available through Fannie Mae and Freddie Mac.
In order to qualify for the Conventional 97 program, the home buyer must be making a first time home purchase. First time purchase is defined as anyone not having owned a home in the last three years, so the term first time is pretty loose. This also means that if you are one of the millions of home owners who lost their home to foreclosure or as a short sale following the collapse of the housing market in the last decade, you may now be eligible to buy a home once again.
With the Conventional 97 loan, home buyers can also get the down payment that is required as a gift from parents or other relatives. As long as the money is not a loan from another person, the buyer can use it without any repercussions. Home owners should ask their lender about the process of proving money is gifted to make sure it doesn’t cause a problem with their application.
Home buyers only have to put down 3% at closing on a standard 30 year, fixed rate mortgage. The home buyer must be purchasing the home as a primary residence, and be able to prove income, employment and meet credit rating requirements. Some programs will still require private mortgage insurance (PMI), but the cost of the insurance will drop off the monthly payments after the loan reaches 80% loan to value.
CHOOSING AN FHA OR CONVENTIONAL 97 LOAN
The type of loan you choose will have a lot to do with your particular circumstances. It will depend on if you qualify for some of the specialty loan programs such as the USDA or VA loans. It will depend on whether or not your credit rating is strong too. The conventional 97 loan requires a credit score of 620, where the FHA loan is available to home buyers with a credit score of 580 or better.
Even if you can qualify for a Conventional 97 loan, if your score is at the minimum you may want to weigh your options. The terms of the loan get better for home buyers with higher credit scores where they remain the same with an FHA loan.
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