The myth is that you need 20% of the purchase price of the home to get a mortgage. While that may have certain advantages, it is not a requirement for most homes. Here are some alternatives that might be a great fit for you as there are mortgages available for a low down payment or even no down payment.
The VA guarantees purchase mortgages with no down payment required for qualified veterans, active-duty service members and certain members of the National Guard and Reserves. You do not go through the VA to get this loan, Private lenders originate VA loans, which the VA guarantees. There is no mortgage insurance. The borrower pays a funding fee, which can be rolled into the loan amount. For purchase and construction loans, the VA funding fee varies, depending on the size of the down payment, whether the borrower served or serves in the regular military, Reserves or National Guard, and whether it’s the veteran’s first VA loan or a subsequent loan. The funding fee can be as low as 1.25 percent or as high as 3.3 percent. For first-time buyers making no down payment, the funding fee is 2.15 percent for members or veterans of the regular military, and 2.4 percent for those who qualify through their service in the Reserves or National Guard. A VA Loan will require the home to be in a certain condition and all homes may not qualify for this program.
FICO Score required from most lenders: 620, but I have heard of some lenders going as low as 580.
The USDA’s Rural Development mortgage guarantee program is very popular and there are limited funds that may run out of money before the fiscal year ends. Many borrowers are surprised to learn that Rural Development loans aren’t limited to farmland. Besides geographical limits, the USDA program has restrictions on household income, and it is intended for first-time buyers, although there are exceptions. This is only available for your primary residence so investment properties will not qualify. There are new construction options available. And you may also use “gift funds” to pay your closing costs or depending on the appraised value in relation to the sales price, you may be able to roll the closing costs into the loan.
To see what areas would qualify for this program you can go HERE.
FICO Score required from most lenders: 620
First Time Home Buyer - Conventional
This is a conventional loan program for first time home buyers with a 3% down payment for qualified borrowers. There may be PMI requirements for this loan for most borrowers, PMI costs may be less than Federal Housing Administration (FHA) mortgage insurance. PMI has stricter credit requirements. PMI has another edge over FHA: Once your mortgage balance is under 80 percent of the home’s value, you can cancel PMI. You typically can’t get rid of FHA insurance unless you refinance into a non-FHA loan.
With a minimum down payment of 3.5 percent, an FHA loan is the low-down-payment option for people with troubled credit histories, lacking savings or high debt to income ratios. The FHA charges an upfront mortgage insurance premium of 1.75 percent of the mortgage amount. On a 30-year loan with the minimum down payment, there’s an annual premium of 0.85 percent of the mortgage amount, or $850 a year for each $100,000 borrowed — $70.83 a month for a $100,000 loan. An FHA Loan will require the home to be in livable, safe and structurally sound condition. All homes may not qualify for this program.
FICO Score required from most lenders: 620 but I have heard of programs that will allow you to put more down and go with a lower credit score.
Conventional conforming loans are not backed by a government entity, like FHA, USDA and VA loans. Instead, they follow the guidelines set forth by Fannie Mae and Freddie Mac. These established guidelines usually call for a minimum credit score, certain income requirements, and a minimum down payment (generally between 3% and 20%). If you are looking for a foreclosure or a “fixer upper” this is where you will want to start as they have lower qualifying conditions for the home.
If you would like more information on buying a new home or getting a mortgage you can contact:
eXp Realty Charleston
Fairway Independent Mortgage Corporation