You Don’t Need A 20% Down Payment to Buy a House Anymore
Don't have 20% for a down payment? No problem! The housing market is improving. Mortgage lenders have made a multitude of low and no down payment programs available. What’s more these programs aren't just for first-time buyers. Repeat home buyers are getting access to zero down products as well.
The "20% down payment myth" is widely circulated; passed down from parents to children, friend to friend and teacher to student. There is a good reason why people say you need 20% down to buy a home. Without 20% down buyers are typically subject to mortgage insurance payments which can add to monthly housing costs. But often times it’s worth it to pay a little more each month and still have money in the bank.
There are 4 mortgage programs which allow for down payments of less than 20 percent; and each is a viable option:
FHA Mortgage: 3.5% Down Payment
The Federal Housing Administration (FHA) is part of the government's Housing and Urban Development (HUD) agency. HUD’s mission is to "create strong, sustainable, inclusive communities and quality affordable homes for all". Through FHA, HUD makes low-down payment mortgages available to U.S. buyers. FHA doesn't make mortgages. It insures them. The agency has standards which all of its loans must meet, lenders underwrite FHA-backed mortgages to these guidelines. Loans which meet the FHA's criteria are eligible for insurance, and can be approved.
FHA mortgage insurance premiums (MIP) have 2 components: The first is known as an FHA upfront mortgage insurance premium. Often times this is wrapped into a loan or paid in full at closing. The second is paid monthly as part of the monthly mortgage payment.
FHA loans do more than just offer low down payments. They provide flexible underwriting standards for individuals with lower credit scores and/or higher debt to income ratios.
VA Loans: No Money Down
Through the Department of Veterans Affairs, veterans of the U.S. Armed Services can access loan programs not available to the typical U.S. consumer. One such program is the no money down VA loan.
VA loans offer 100% financing and underwriting standards that are sensitive to the needs of a military family. VA loans do not require mortgage insurance, regardless of your down payment. The VA does charge a funding fee which, for some veterans, can be waived.
USDA Rural Home Loans: No Money Down
Like the VA loan, USDA mortgages do not require a down payment. Home buyers can finance up to 100% of a home's purchase price.
The USDA loan program is backed by the U.S. Department of Agriculture and the program is meant to help households of modest means. As such, the program enforces maximum income limits for its borrowers based on the typical income for the area.
USDA mortgage insurance rates are often the lowest and like FHA have 2 components: The first is the USDA Guarantee Fee. Often times this is wrapped into the loan. This does result in a higher loan amount than purchase price. The second is paid monthly as part of the monthly mortgage payment.
Conventional: 5-10% Down Payment
Conventional is often the best choice for home buyers with above-average credit scores. Monthly mortgage Insurance is required but your lender can shop to find you a lower mortgage insurance rate.
This program allows for a gift of a down payment. This gift can also be a gift of equity; this is helpful when purchasing a home from family members. Let’s say the home appraises for $300,000 but they are willing to agree on a purchase price of $285,000. They can gift you the $15,000 of equity and there is your 5% down payment.
It's a terrific time to be a home buyer. Home values are rising in many U.S. markets and there are an abundance of low and no down payment mortgages available for today's buyers.
Apply with Mann Mortgage today and see what you qualify for. This application can be done at no cost to you, with no obligation to proceed , is good for 4 months and will help you as you work with real-estate agents and make an offer.
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