This guide covers low-down-payment mortgage for first-time homebuyers. Most homebuyers are looking for low-down-payment mortgage programs. In general, homebuyers can easily afford the new monthly housing payment. However, coming up with a down payment is the problem.
Most low-down-payment mortgage programs only require a 3% to 3.5% down payment. USDA and VA loans do not require any down payment on a home purchase. However, only eligible active and retired members of the U.S. military with a certificate of eligibility can qualify for VA loans. Only certain areas designated by the USDA as rural areas are eligible for USDA loans. There are also household income restrictions on USDA loans.
Understanding Low-Down-Payment Mortgage Programs
Homebuyers limited with a down payment on a home purchase should understand how the down payment requirement works on loan programs. Most homebuyers do not have to worry about closing costs on home purchases.
Closing costs can be covered with a lender credit or seller concessions. Most of our homebuyers at Gustan Cho Associates do not pay closing costs out of their pockets.
Our team at Gustan Cho Associates helps homebuyers with their purchase contracts and ensures seller concessions are included. All homebuyers must come up with a down payment on a home purchase. Two government loan programs do not require a down payment. Lenders can offer 100% financing on VA and USDA loans. This article will cover the low down payment mortgage options.
Down-Payment-Assistance Low-Down-Payment Mortgage Options
Gustan Cho Associates has a non-recoverable DPA low-down-payment mortgage program with FHA loans. First-time homebuyers or first-responders can apply for the 100% fully non-recoverable FHA down payment assistance program.
You can refinance the FHA loan in six months to an FHA streamline refinance or to a conventional loan and you do not have to pay the down payment you got as a DPA.
You need a 620 credit score and a debt-to-income ratio no greater than a 48.9% back-end. There is no front-end debt-to-income ratio cap. Borrowers need to get an approve/eligible per automated underwriting system findings to be eligible.
USDA Mortgage Guidelines on Zero Down Payment
USDA loans are among the most popular loan programs in open-space rural areas. USDA loans do not require any down payment. Lenders are approving USDA home mortgages with 100% financing at low mortgage rates due to the government guarantee by USDA. USDA loans are popular in Southern states like Alabama, Georgia, Kentucky, Mississippi, Texas, Florida, Ohio, Indiana, Michigan, and Arkansas.
USDA home mortgages require the property to be in a USDA-designated rural area. The U.S. Department of Agriculture is the government agency in charge of USDA loans.
USDA created a housing program to help promote home ownership in rural designated areas for low to moderate-income families. USDA loans require a maximum household income cap, depending on the area. The number of people versus household income plays a role when qualifying for a USDA loan.
No Down-Payment on VA Home Mortgages
VA loans are the best home mortgage program in the nation. Unfortunately, only active or retired members of the U.S. Armed Services with a valid certificate of eligibility are eligible to qualify for VA loans. Lenders offer 100% financing with no mortgage insurance required at the best rates on VA loans due to the government guarantee.
There is a VA funding fee of 2.15% of the loan amount. That needs to be paid. The VA funding fee is waived for 100% disabled veterans.
Partially disabled veterans may get a partial waiver depending on the percentage of their service-related disability. The VA funding fee is rolled into the loan balance. VA loans have lenient agency mortgage guidelines. There are no minimum credit score requirements nor a maximum debt-to-income ratio cap on VA loans with an automated underwriting system approval. As of January 1st, 2020, VA loans have no maximum limit.
FHA Low-Down-Payment Mortgage
HUD, the parent of FHA, is the federal agency in charge of Agency Lending Guidelines on FHA loans. Over 40% of mortgage borrowers utilize FHA loans for their home purchase or refinance needs. To qualify for a 3.5% down payment FHA loan, the borrower only needs a 580 credit score. Dale Elenteny, a senior loan officer at Gustan Cho Associates, explains low-down-payment mortgage loans.
HUD’s role and mission are to promote homeownership with less-than-perfect credit and low down payment requirements.
Homebuyers under 580 credit scores and a 500 FICO are eligible for FHA loans. However, under HUD Guidelines for borrowers with under 580 credit scores, the minimum down payment required is 10% versus 3.5%. The team at Gustan Cho Associates can help our clients boost their credit scores to at least 580 FICO in just a few months.
Fannie Mae And Freddie Mac Agency Guidelines on Conventional Loans
Conventional loans are often referred to as conforming loans. This is because, for Fannie Mae or Freddie Mac to purchase conventional loans on the secondary market, it must conform to Fannie/Freddie Agency Guidelines.
Fannie Mae or Freddie Mac will not purchase them on the secondary mortgage bond markets if it does not conform.
This section will cover the standard Fannie Mae and Freddie Mac Agency Guidelines—a 3% down payment for first-time homebuyers. First-time homebuyers are those not interested in a home in the past three years.
Low Down Payment Mortgage Options
A 5% down payment is required on a home purchase. The maximum loan limit on conventional loans is $726,200. Private mortgage insurance is required for any homebuyer with less than a 20% down payment. Low-down-payment mortgage loans for first-time homebuyers are in demand. Conventional loans are not insured or backed by any federal agency.
Therefore, credit standards are higher on conventional versus government loans.
There is no front-end mortgage insurance premium required like FHA loans. Private mortgage insurance cancels on conventional loans if the LTV falls below 78% LTV. The higher the borrower’s credit scores, the lower the mortgage rates on conventional loans. The higher the equity, the lower the rates.