October 23rd, 2015 10:13 AM by Jackie A. Graves, President
YOU DON'T NEED 20% DOWN
TO BUY A HOME
Housing is on the mend.
Since the start of 2012, home values are up
nearly thirty percent nationwide. Unfortunately, rents are rising just as fast.
In many U.S. markets, it's more economical to
own a home today than to rent one, which is one of the reasons why first-time
home buyers account for close to one-third of today's home purchases.
This is higher market share as compared to
recent years; a figure buoyed by three key factors.
First, mortgage rates are ultra-low,
which has boosted home affordability across the country. Rates continue to
troll near 4 percent and remain firmly below their year-ago levels.
Second, according to mortgage-software
provider Ellie Mae, U.S. lenders are approving more purchase loans than during
any period this decade.
Nearly 70% of all conventional purchase loans
are getting approved.
And, third, there are more low-
and no-down payment mortgage programs available to today's home buyers
than during any period in the last 10 years.
No matter how much or how little you want to
"put down" on a home, there's a mortgage program which can help you.
Rates are low and it's easier to get approved.
What follows is a preview of seven popular
loans available to today's first-time and repeat home buyers. Each is commonly
available with rates which can be previewed anytime online.
to see today's rates (Oct 23rd, 2015)
SMALL DOWNPAYMENT MORTGAGE
FHA Loan (3.5% Down Payment)
FHA loans allow for a 3.5 percent down
payment. Insured by the Federal Housing Administration (FHA), these loans are
among the flexible and forgiving for today's home buyers.
FHA loans are typically best-suited for
low-down payment buyers with average or below-average credit scores; and buyers
looking at multi-unit homes (e.g.; 2-unit homes, 3-unit homes, and 4-unit
homes) as a primary residence.
FHA loans require mortgage insurance premiums
(MIP) but, in January 2015, those FHA MIP costs were reduced to help keep FHA
loans affordable for buyers using the program.
FHA loans are assumable, which means that a future buyer of your home can
purchase your home with its FHA loan -- and its mortgage rate! -- still
attached. You can actually pass today's low rates on to tomorrow's buyer of
Conventional 97 (3% Down Payment)
97 is a special program which was recently reinstated by the Federal
Housing Finance Agency (FHFA), which is the parent of both Fannie Mae and
The Conventional 97 requires a down payment of
just 3 percent and, among other benefits of the program, the Conventional 97
allows a buyer's down payment to be gifted by a third-party.
The only requirement is that the gifter has a
blood or marriage relation to the buyer of the home; or is a legal guardian,
domestic partner, or finance/fiancee.
The Conventional 97 mortgage is limited to
$417,000, regardless of your localmortgage loan
limit; and multi-unit homes are not allowed. The program is also restricted
to fixed-rate mortgages only.
The Conventional 97 program is often more costly on a monthly-basis than a
comparable FHA mortgage. However, because the program's mortgage
insurance can cancel in as few as 12 months from the date of purchase, its
long-term costs are often much less.
Good Neighbor Next Door ($100 Down Payment)
Neighbor Next Door (GNND) program is a special HUD mortgage program
which allows home buyers to purchase homes with just $100 down.
The program is available to members of law
enforcement; firefighters or emergency medical technicians; and, teachers of
pre-K through 12th grade.
Buyers in the program also receive a home
purchase discount of 50% -- yes, 50 percent! -- in exchange for agreeing to
make the home your sole residence for 36 months, at minimum.
Via Good Neighbor Next Door, then, a $100,000
home can be bought for $50,000.
The Good Neighbor Next Door program
allows buyers to use FHA, VA, or conventional mortgage financing which
helps to ensure low interest rates.
Good Neighbor Next Door program allows you up to 180 days to move in to your
new home so, if you plan to make repairs prior to Moving Day, there's no
reason whatsoever to have the house work done hastily.
Home Construction Loan (3.5% Down Payment)
Of all the low- and no-down payment mortgage
programs available to today's home buyers, only one can be used for home
construction -- the FHA 203k loan.
The 203k loan comes in two flavors. The first
is the Streamlined 203k, which is used for less-extensive projects and which is
limited to $35,000 in total repair costs.
The more common 203k loan is the
"standard" 203k, which is used for projects which involve moving
walls or replacing plumbing; or doing anything else which would prohibit you
from living in the property while the work is being performed.
The standard 203k can also be used for
landscaping or converting a home with more than 4 units into a 4-unit,
the 203k loan is backed by the FHA, home buyers using it remain eligible to use
the FHA's popular refinance program -- the FHA Streamline Refinance. The FHA Streamline Refinance is
widely-viewed as the simplest, fastest program for refinance an existing
Piggy-Back Mortgage (10% Down Payment)
The "Piggy-Back" Mortgage is a not
really a mortgage at all -- it's two mortgages, one mortgage
"piggy-backed" on top of another in order to borrow 90% of a home's
Sometimes called an "80/10/10 mortgage",
the Piggy-Back has the buyer bring a 10% down payment to the closing table and,
to avoid having to pay mortgage insurance, two mortgages are issued instead of
one. The first mortgage is typically a conventional loan, issued for 80% of the
home's purchase price.
The second mortgage is typically a home equity
line of credit (HELOC), issued for 10%.
Piggy-Back Mortgages are often used by
home buyers who plan to pay down or reduce the balance on their second mortgage
within the first 24 months of homeownership.
The second mortgage of a Piggy-Back Mortgage is often adjustable and tied to
Prime Rate, which is tied to the Fed Funds Rate. When the economy is expanding,
the Fed Funds Rate can jump unexpectedly, substantially raising your overall
monthly housing payment. Be careful when selecting a mortgage linked to
USDA Loan (No Down Payment Required)
loan is guaranteed by the U.S. Department of Agriculture and allows
for 100% financing. Formally known as a "Section 502" loan, lenders
sometimes call the USDA loan a "Rural Housing Loan", which is a
bit of a misnomer.
USDA loans are available in non-rural
areas as well, including within many U.S. suburbs.
The big draw of the USDA loan is that its
mortgage rates are often the lowest of all the low- and no- down payment
mortgage programs; and its mortgage insurance requirements are quite low, too.
As compared to FHA loans, for example, USDA
mortgage insurance costs are half which is why many of today's
buyers will opt for a USDA loan over an FHA one -- even if they plan to put
3.5% down. Simply, USDA loans are more economical.
In order to qualify for a USDA loan, the
income of a home buyer's household may not exceed the local media by more than
fifteen percent. However, large households are granted certain exclusionary
You can look up this year's USDA income limits here.
Noteworthy: The USDA loan program is among the
few low- and no-down payment mortgage programs which can be used to
purchase manufactured homes and modular homes.
VA Loan (No Down Payment Required)
VA loans are loans which are guaranteed by the
Department of Veterans Affairs. Generally speaking, VA loans are available to
active duty members of the U.S. military; honorably-discharged service members;
and many surviving spouses.
Review the complete VA mortgage
eligibility guide here.
VA loans are unique among low- and no-down
payment mortgage programs because they require no downpayment whatsoever
and never require the buyer to make a mortgage insurance
VA loans can be used for homes of any type --
single-family, condo, multi-unit, and more -- and are assumable by future VA
home buyers. Furthermore, the VA loan can be used to finance energy-efficiency
improvements to a home.
Interest rates for a VA loan are typically the lowest of the three
"major" loan types -- VA, FHA, and conventional. According to
Ellie Mae data, VA mortgage rates beat FHA rates by about one-eighth of a
percentage point and can be as much as forty basis points (0.40%) lower than a
comparable conventional loan.
WHAT ARE TODAY'S
There are a bevy of low- and no-downpayment
mortgage options for today's home buyer so, whether you're a first-time buyer
or experienced one, there's bound to be program to help you buy a home.
Take a look at today's real mortgage rates
now. Your social security number is not required to get started, and all quotes
come with instant access to your live credit scores.
Me Today's Rates (Oct 23rd, 2015)
by DAN GREEN – To view the original
article click here