There is no argument that financing has become more of a challenge over the past few years; however, there are still some great options available to help people purchase homes. Private mortgage insurance (PMI) companies have expanded their guidelines and now allow for conventional financing with as little as 3 percent down. This will require a minimum credit score of 660 and the 3 percent must come from the purchaser’s own funds. The PMI option is available on most conventional loan products and may be paid as a “single premium.” The single premium option means the PMI is paid in one lump sum (at the time of closing) in lieu of paying on a monthly basis. The best part is that this one-time payment can be incorporated into the loan at a slightly higher interest rate, as compared to a standard loan with monthly PMI, avoiding any additional fees. This results in no monthly PMI payments and a much lower mortgage payment.
In addition to this type of conventional financing, the Federal Housing Administration (FHA) can be a great option for homebuyers who are looking to purchase a home with a smaller down payment. FHA is a government-insured mortgage that is available for buyers who are purchasing a property as their primary residence and allows for more flexible guidelines. This type of financing can be ideal for clients who have had trouble with credit in the past. Consumers can purchase a single family, condo, or even a two-unit building with as little as 3.5 percent down. Three-to-four units can also be purchased with as little as 5 percent down, which can be a more attractive option than conventional loans that require a minimum of 20 percent down for three-to-four units. FHA qualifications can vary slightly from lender to lender, but most will require a minimum credit score of 620. FHA also allows for more flexibility regarding the source of the down payment required. Buyers can utilize a gift from family members, employers or even grants from available down payment assistance programs.
The Veterans Administration loan (VA) is another form of government financing that allows for little to no down payment. With full VA eligibility, buyers can purchase homes with no down payment required, and there is no monthly mortgage insurance. Like FHA financing, this program allows for more leniency with credit scores and fewer restrictions regarding the source of the down payment. A veteran or a non-remarried surviving spouse can utilize this type of financing.
In addition to these loan programs, there are also some great options offered to buyers who are purchasing a home that is currently owned by Fannie Mae. If the home is eligible, they can purchase these properties using Fannie Mae’s HomePath loan. This program requires as little as 3 percent down and has no PMI. Because this is a Fannie Mae to Fannie Mae transaction, there is no appraisal required and buyers can qualify with a credit score as low as 660.
Even though we have faced many changes in the industry over the last few years, one thing remains the same: there are great options for buyers in today’s market. Low down payment options, alongside historically low interest rates, are the perfect combination to help more and more people achieve their dream of homeownership.
Sam Sharp is a senior vice president of mortgage lending with Guaranteed Rate. He has been recognized as a top producer for the past eight years, and has represented over 40 developments as their lender of choice for the past 10 years. He can be reached at 773.290.0455 or SSharp@guaranteedrate.com.