How To Get Yourself A Low Down Payment Mortgage

If you’ve been wishing to buy your first home, it might be the right time to make a move as mortgage rates are in the middle of the lowest ever.

However, you might think you can’t afford the down payment or closing costs. Nevertheless, many people believe you need 20 percent to buy a house.

While that amount is recommended, there are many programs providing financial assistance to first-time buyers and mortgages requiring as little as 3 percent down.

Here’s a look at several programs that can help you out in getting a low down payment mortgage:

GOVERNMENT-INSURED LOANS

These loans are offered from bank, non-bank, and credit union lenders. Check with a lender to see if it is able to give you government-insured loans.

Through Federal Housing Administration (FHA) the loans which are a part of the Housing and Urban Development Department (HUD), requires a minimum down payment of 3.5 percent, meanwhile, the average FHA loan down payment is 4.4 percent.

These loans are for the borrower who is prepared for homeownership but may not have a lot of cash available.

FHA loans are for people who have been closed of conventional housing loan requirements.

They either do not have a credit history or have a low credit score, according to the FHA.

A credit score of 580 or more than that is necessary for an FHA loan with a least down payment of 3.5 percent, according to HUD.

With a credit score between 500 and 579, the borrower would be restricted to a maximum loan-to-value ratio of 90 percent, and a 10 percent down payment would be mandatory.

The loan-to-value ratio compares the total of your mortgage with the appraised value of the home.

Other government-insured loans comprise of Department of Veterans Affairs and Department of Agriculture home loans. For VA loans, up to 100 percent financing is obtainable.

FHA loans oblige an up-front mortgage insurance premium of 1.75 percent of the loan balance along with a 0.45 percent to 1.05 percent of the loan amount each year, based on the amount borrowed, loan-to-value ratio, and loan term.

Mortgage insurance is obliged on loans for which the down payment is less than 20 percent of the home’s appraised value.

DOWN PAYMENT ASSISTANCE

A few buyers still may feel that a 3 percent down payment is very high, and may need assistance raising it.

For example, buying a $300,000 home through the Fannie Mae HomeReady and the Freddie Mac Home Possible programs would necessitate a $9,000 down payment. (The Fannie Mae97 standard product does not permit for down payment assistance.)

Some banks such as Bank of America and Sandy Spring Bank provides down payment assistance.

For instance, Sandy Spring Bank has the Closing the Gap Down Payment Assistance Program, which can be used with Fannie Mae Home Ready and Freddie Mac Home Possible mortgages.

In the example above, borrowers may be eligible to borrow the $9,000 down payment enabling them to get hold of 100 percent financing for their home purchase.

“The main thing is communicating with lenders,” Hollensteiner says. “Publicize yourself with all the programs. There’s a lot of ways for potential first-time homebuyers to finance a property.”

In addition, you may get the seller to pay some or all of the closing costs or gain lender credits to cover some or all of the closing costs, he says.

Reference Source: The Washington Post

https://www.compareclosing.com/mortgagenews/how-to-get-yourself-a-low-down-payment-mortgage/

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