The four most common low-or- no down payment mortgages used by first- time homebuyers are a FHA loan, a VA loan, the USDA loan and the Conventional 97 loan.
FHA Loan – FHA Loans only require a down payment of 3.5% of the home’s
purchase price. The Federal Housing Administration insures each loan and
features lower underwriting standards and rates than conventional loans. This is
a very popular loan type among first time buyers as the program allow for below-
average credit scores. In order for a lender to get the FHA’s insurance on its
loans it is required to verify that the loan meets the minimum Federal Housing
Administration’s qualification standards.
VA Loan – VA Loans are available to members of the United States military and
veterans of the Armed Services. These mortgages provide a 100% financing
option (although there is a small funding fee added to the loan), but the mortgage
rates are almost always lower than those of other programs. Each VA Loan is
guaranteed by the United States Department of Veteran Affairs (VA) and do not
require the purchase of Private Mortgage Insurance (PMI). Because the
government backs this loan the bank assumes less risk and therefore makes it
easier for first time buyers to get approved for this type of loan.
USDA Loan – USDA Loans also allow for 100% financing for homes in rural areas
and less-dense suburban neighborhoods nationwide. Their mortgage rates are
often similar to VA mortgage rates, which are relatively low. Like the other two
loans, the government also backs this type, in this case the United States
Department of Agriculture.
Conventional 97 – The Conventional 97 is a 3% down option offered by Fannie
Mae and compared to other 3% conventional options, this loan has fewer
eligibility restrictions. Generally this loan is a better option for buyers with above
average credit scores as their credit score will help determine the rate of the
buyer’s mortgage insurance (buyers with lower credit scores would be better off
using an FHA loan). Another benefit for using this type of loan is that
conventional Primary Mortgage Insurance (PMI) is cancelable when your home
reaches 20% equity (FHA mortgage insurance requires a refinance into a
conventional loan to cancel its mortgage insurance).
If you’re in the area and you’re considering purchasing your first home let Nextview Loans look into what low-or-no down payment options are
best for you and your family. The experienced mortgage lenders in our office are
dedicated to helping first time buyers get the help they need to purchase a home
with as little or no money possible.