Low Down Payment Mortgage For First Time Home Buyers

Low Down Payment Mortgage For First Time Home Buyers

Gustan Cho Associates are mortgage brokers licensed in 48 states

This article is about Low Down Payment Mortgage For First Time Home Buyers

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 the down payment is the problem
  • Many renters do not even look to buying a new home because they are under the assumption you need great credit and a 20% down payment
  • This is not true
  • 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/or 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

http://www.youtube.com/watch?v=DS9aEpg0PAg&ab_channel=Gustan Cho Associates-MortgageBankers

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 and/or sellers concessions
  • Most of our homebuyers at Gustan Cho Associates do not pay closing costs out of their own pockets
  • Our team at Gustan Cho Associates help homebuyers with their purchase contracts and make sure sellers concessions are included
  • All our borrowers at Gustan Cho Associates Mortgage Group have to worry about is the down payment
  • There are two government loan programs that do not require down payment
  • Lenders can offer 100% financing on VA and USDA Loans

We will first cover the no down payment loan programs and then cover FHA and Conventional loans in this article.

USDA Mortgage Guidelines On Zero Down Payment
USDA Mortgage Guidelines On Zero Down Payment

USDA loans are one of 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
  • The first requirement with USDA home mortgages is the property need to be located 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 homeownership in rural designated areas for low to moderate-income families
  • The second requirement of USDA loans is there is a maximum household income depending on the particular area
  • The number of people versus household income plays a role when qualifying for a USDA loan

USDA loans are mainly popular in Southern states like Alabama, Georgia, Kentucky, Mississippi, Texas, Florida, Ohio, Indiana, Michigan, Arkansas.

No Down Payment On VA Home Mortgages

VA loans are the best home mortgage program in the nation.

  • Unfortunately, only active and/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 is 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, there is no maximum loan limit on VA loans.

FHA Low Down Payment Mortgage
FHA Low Down Payment Mortgage

HUD, the parent of FHA, is the federal agency that is in charge of Agency Lending Guidelines on FHA loans. Over 40% of mortgage borrowers utilize FHA loans for their home purchase and/or refinance needs. HUD’s role and mission are to promote homeownership with less than perfect credit and low down payment requirements. To qualify for a 3.5% down payment FHA loan, the borrower only needs a 580 credit score. Homebuyers with under 580 credit scores and down to 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 matter of couple of months.

Fannie Mae And Freddie Mac Agency Guidelines On Conventional Loans

Conventional loans are not insured or backed by any federal agency. Therefore, credit standards are higher on conventional versus government loans. Conventional loans are often referred to as conforming loans. This is because, in order for Fannie Mae and/or Freddie Mac to purchase conventional loans on the secondary market, it needs to conform to Fannie/Freddie Agency Guidelines. If it does not conform, Fannie Mae and/or Freddie Mac will not purchase them on the secondary mortgage bond markets.

Here are the standard Fannie Mae and Freddie Mac Agency Guidelines:

  • 3% down payment for first-time homebuyers
  • First-time homebuyers are those who did not have any interest in a home in the past 3 years
  • 5% down payment required on a home purchase
  • The maximum loan limit on conventional loans is $510,400
  • Any homebuyer with less than 20% down payment, private mortgage insurance is required
  • 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.