August 20th, 2018 8:18 AM by Jackie A. Graves, President
It’s a big roadblock on
the path to homeownership: the down payment. FHA loans offer
low down payments and accounted for about 13% of all home loans in 2016,
according to government data.
That may not seem like a
huge percentage, but about 80% of FHA loans are made to first-time home buyers.
That meant 730,000 new homeowners last year, according to an analysis by
Genworth, a mortgage insurance provider.
Here’s how much an FHA
down payment will cost you — and how you can get an FHA-backed low-down-payment
How much is an FHA loan down payment?
An FHA loan can mean a
down payment as low as 3.5%. On a $300,000 home, that would be $10,500. Compare
that with the traditional 20% down payment that most lenders prefer, which
would come out to $60,000. Big difference. And that’s before closing costs and
To get the minimum FHA
down payment deal, you’ll need a credit score of 580 or better. If you fall in
the FICO range of 500 to 579, you will be required to put 10% down. To see
where you stand, get your credit
score and run your numbers on an FHA
mortgage payment calculator.
But FHA loans come with a
price tag: mortgage
insurance premiums. You’ll pay an upfront fee and ongoing monthly premiums.
Beyond FHA: Low-down-payment
Many banks, credit unions
and online mortgage lenders offer FHA loans. But for borrowers with higher
credit scores, FHA loans aren’t the only low-down-payment mortgages around.
Fannie Mae- and Freddie Mac-backed mortgages
— which are considered “conforming”
loans — are popular with lenders because they don’t carry the regulations and
restrictions of FHA-backed mortgages.
“While FHA loans still
serve their purpose for some buyers, folks with [credit] scores above 720
usually find conforming loans a better option, especially now, since they can
put as little as 3% to 5% down,” Ted Rood, a senior loan officer in St. Louis
with 15 years of experience, tells NerdWallet.
You will also pay for
mortgage insurance on these conforming-loans — also called conventional
mortgage — programs that let you borrow up to 97% of the home’s value, he
says. But with a Fannie- or Freddie-backed loan, you may be able to cancel it
after you reach 20% equity in your home. By contrast, FHA mortgage insurance is
most often charged for the life of the loan.
FHA loans are still the
most sought-out option for first-time home buyers, particularly for buyers with
credit that is less than perfect. But if you have good credit, Fannie- and
Freddie-backed loans open up new possibilities for qualified borrowers who just
can’t quite get over that 20% down hurdle.
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