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Low Down Payment Mortgage Options: Home Loans with 3% Down

January 18th, 2018 7:04 AM by Jackie A. Graves, President

A 20% down payment is considered ideal when buying a home, but saving up that much can be a challenge.  The good news is there are a number of low down payment mortgages available today.  If you’re shopping for a low down payment mortgage, the lowest you can go is three percent down (unless you qualify for a VA loan or USDA loan).  Here’s a quick look at some of the 3% down mortgages that are available. As with all mortgages, eligibility will depend on your profile, so find a local lender to advise you on your specific situation and objectives.

Conventional 97 Mortgage

This low down payment home loan allows for first-time buyers to obtain loans up to $417,000 with 3% down. The highest price home you could buy with three percent down would be about $430,000. To be considered a first-time buyer, you must not have owned a home in the past three years.

You can use your own funds or gift funds from a family member for the down payment, and the home must be an owner-occupied single unit home (including condos). This means you can’t buy two- to four-unit properties, a second home, or investment properties with this loan.

Conventional 97 mortgages are 30-year fixed loans, and do require mortgage insurance. Mortgage insurance is an extra fee on top of the monthly mortgage payment. If you put three percent down into a mortgage calculator, it will calculate the mortgage insurance for you automatically.

HomeReady Mortgage

The HomeReady low down payment home loan allows for buyers to obtain loans up to $417,000 with 3% down. The highest price home you could buy with three percent down would be about $430,000.

Special features of this loan include the ability to use income of all members living in a household to qualify, and the ability to use rental income from renting out a room in the home to qualify.

You must live in the home, so you can’t buy second homes or investment properties. You can buy two- to four-unit properties as long as you’re living in one of the units, but your down payment requirements will increase if you buy a two- to four-unit property.

With HomeReady, you can get 10-, 15-, 20- or 30-year fixed rate mortgages, and you can also get 5-, 7- and 10-year adjustable rate mortgages.

This loan does require mortgage insurance, but it’ll be cheaper than mortgage insurance on the Conventional 97.Rates for HomeReady loans are lower, too.

This loan’s more flexible qualifying and lower-cost features are offset by restrictions on who can get the loan, so it can be used for those who need it most.  Read the full HomeReady FAQ for more on the borrower income and home location requirements for this loan.

Affordable Loan Solution Mortgage

This specialty product is offered by Bank of America in partnership with Freddie Mac and Self Help Ventures Fund. It allows down payments as low as three percent with no mortgage insurance and no post-closing reserve requirements.

Down payment can come from cash or gift funds, but borrower’s income cannot exceed 100 percent of an area’s median income as determined by the U.S. Department of Housing & Urban Development.

Like the Conventional 97, the property must be a single unit (including condos), and it must be a primary residence only — no second homes or investment properties.

If borrowers don’t have a full history of traditional credit like student loans, car loans, and credit cards, they can use non-traditional credit to qualify, such as documenting on-time payment history for utilities such as phone, electric, or gas.

yourFirst Mortgagesm

The yourFirst Mortgage is a low down payment mortgage option offered by Wells Fargo that’s geared towards first time home buyers.  This conventional loan allows for down payments as low as 3%. It also allows down payments to come from down payment assistance programs as well as gift funds for closing costs.

Borrowers who have a down payment less than 10% may qualify for an interest rate reduction if they participate in a homebuyer education course led by a HUD-approved housing counselor.

Similar to the HomeReady Mortgage, borrowers may use income of all members living in a household and rental income from renting out a room in the home to qualify.  As part of it’s flexible income and credit guidelines, borrowers are able to show their credit history from non-traditional sources, such as rent, tuition, and utility payments.

Like the Conventional 97, it does require mortgage insurance, which will increase the monthly cost. But the mortgage insurance can fall off the loan once the LTV ratio reaches 80%.

Interested in any of these mortgages? Talk to a mortgage lender to learn more and to see if you qualify. You can search Zillow’s lender directory or quickly find a local lender here who can help.

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Posted by Jackie A. Graves, President on January 18th, 2018 7:04 AM

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