Low to moderate income home shoppers represent a large group of 21st century first time buyers. Regrettably, they’re a group that was also sidelined in the recent housing recovery due to overly strict loan requirements and limited low down payment mortgage options offered. Lenders were forced into the most restrictive guidelines ever due wave upon wave of Dodd-Frank banking regulations after billions of dollars in lawsuit settlements.  Millions of first time buyers now see a glimmer of hope with increasingly sensible rules and low down payment mortgage loans that are low-risk to banks and borrowers alike.  3% down mortgage loans are making a comeback and first-time home buyers are on an upswing.

3.5% Down Payment FHA Loans

3% Down Mortgage OptionsFHA loans have been so popular because they only require a 3.5% down payment and a minimum credit score of 580 with some lenders.  Borrowers with credit scores lower than 580 require at least 10% down. FHA loans also permit 6% seller concessions, which means the seller may pay for up to 6% of the closing costs for the buyer.

3% Down Payment Conventional Loans

3% percent down payment conventional loans offer first-time buyers a fixed-rate mortgage option for loan amounts up to $424,100. Down payment assistance is available in the form of gifts, grants or community assistance programs. Like other conforming mortgage programs, the minimum credit score for conventional low down payment loans is 620. Private mortgage insurance is required for all conventional loans above 80% loan-to-value (LTV).  3% conventional loan PMI insurance can be rolled into the loan amount or paid separately by the homeowner.

What’s the Best Low Down Payment Loan: Conventional 97% Mortgage Loans or FHA Loans?

With all the low down payment mortgage choices for home buyers today, the most common choices are the FHA 3.5% down mortgage program and the Conventional 97% mortgage program.  Which mortgage is best for you?  That really depends your goals, your qualifications and the particular situation you are in.

3% Down Mortgage Requirements

Credit Score

Your credit score may can the deciding factor for 97% home loans fit your needs. FHA loan programs are the may work for you with FICO credit scores of 580 or higher. Conventional 97% loan programs, on the other hand, may require a FICO credit score of 620. Some conventional 97% lenders may even require better scores than that.

3% Down Mortgage for First Time BuyersConsequently, if you have a middle FICO credit score that’s between 580 and 620, an FHA mortgage is usually your only available option. As credit scores improve above 620, however, the Conventional 97 mortgage becomes more inviting. Generally speaking, conventional 97% rates and PMI costs vary with credit scores, while FHA loans remain fairly consistent.

Mortgage Insurance

Your credit scores have the biggest impact on which 3 percent down mortgage have lower mortgage insurance fees for your circumstances.  If you have a good or excellent credit score, you will typically discover that Conventional 97 loans cost less than their FHA counterparts over a long time frame.  Borrowers with average credit almost always benefit from the structure of FHA loan mortgage insurance.

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