The mortgage down payment is a barrier faced by first-time home buyers for generations. Even if you have steady employment and good credit scores, a large down payment can be much harder to achieve. Fortunately, low down payment mortgage options are now available for those who don’t have significant liquid assets. Some options are no down payment mortgages, so you won’t need to bring any cash at all.

What is a Low Down Payment Mortgage?

Low Down Payment MortgageMaybe you share a common misperception that a 20% down payment or 10% down payment is needed to buy a home with a mortgage.  Don’t believe it.  Low down payment mortgage options have been around since the Federal Housing Administration was created by the U.S. government in 1934.  Generally speaking, any home loan program that requires you to make a 10% down payment or less is considered a low downpayment mortgage.

Down Payment Basics

The down payment amount required by various mortgage programs can depend on many variables, but there are two that are usually important. Either one of these factors determine the amount of cash you have to come up with for the home of your dreams, or if you can get a loan at all.

  1. Credit Score – Generally speaking, the higher your score is, the lower the down payment you may be eligible for.
  2. Sales Price – The home’s sales price is directly related to your down payment amount because it’s expressed as a “Loan-to-Value” percentage of the property value.

Down payments are a simple calculation based upon a percentage of the property sales price or home value.  Simply put, if you buy a home for $100,000, and the mortgage program requires a 10% down payment, then the you’ll need to pay $10,000 at closing (not factoring an closing costs, seller concessions, taxes, escrow or other fees).  Low and zero down payment mortgages almost always require mortgage insurance, the only exception being VA loans for military veterans.

What does LTV mean?

The loan-to-value ratio (LTV) is a finance term that measures the loan amount in relation to the property value. Loan-to-value is directly connected to the mortgage down payment amount you’re required to make.  The higher the LTV ratio is permitted to be, the lower the required down payment is for the home buyer.  For example, maximum permissible LTV for a conventional loan is 97%, hence the minimum down is 3%.

Low Down Payment Home Loans

Home loans with low down payments are readily available today for first time homeowners and homeownership veterans alike, including zero down and 3% percent down mortgages.  5% percent down and 10% percent down mortgage loans are also available.

FHA Loans

The minimum FHA loan down payment of 3.5% has been a popular first time home buyer program since the 1930’s.  Technically, FHA rules allow applicants to make larger down payments if they like, 3.5% is only the minimum down payment for FHA loans. In certain circumstances, FHA down payment assistance can actually pay for the already affordable FHA minimum down payment, which leaves very little or nothing at all for the applicant to pay.

Conventional Loans

Too many mortgage shoppers still believe there’s a 20% down payment requirement for conventional loans. The truth is that conventional first time home buyer loans are flexible, and the minimum down payment for conventional loan applicants can be as low as 3%.  Loan down payment conventional loans may sometimes have a higher rate than FHA loans.  Be that as it may, they’re still beneficial for good credit applicants because there’s no upfront mortgage insurance costs or funding fee. Here’s a few popular conventional mortgage down payment options below 10%:

Conventional 97% LTV Mortgage

Conventional 97% mortgage programs are the perfect first time home buyer loans for applicants with a steady job and credit scores above 660.  The most popular 97% conventional loan program is called as “HomeReady®”, which is the highest LTV Fannie Mae first time home buyer loan.  Freddie Mac has a conventional 97 loan program of their own called “Home Possible®” mortgages.  Fannie Mae Home Ready income limits are the same as Freddie Mac Home Possible income limits. Conventional 97% lenders may also overlay their own requirements. You can further reduce 3% down conventional loan down payments through approved first time home buyer grants.

5% Down Conventional Loan Program

Obtaining a conventional loan with 5% down isn’t that much different than a conventional mortgage with a 20% down payment. Conventional loan requirements are pretty much the same for a 5% down mortgage and 20% down loans, with the exception of the PMI mortgage insurance amounts needed.

Zero Down Mortgage Options

Buying a house with no down payment sounds attractive to many, and fortunately zero down payment mortgage options are getting easier to get along with other first-time home buyer programs.  The most popular 0% down mortgage programs today include:

0% Down USDA Loans

“Rural Development Loans”, also known as USDA Loans, are offered by the United States Department of Agriculture across 97% of America’s land mass. USDA home loans allow borrowers with moderate income or low income buy a home with nothing down.

0% Down VA Loans

VA loans are offered by the US department of Veterans Affairs (VA) for veterans and qualified spouses to buy a home anywhere in America with zero down. Once of the biggest benefits of VA home loans is that there is no monthly mortgage insurance, indeed you won’t find that in another low down payment home loan program.

Down Payment Assistance Programs

First-time home buyer incentives offer you a way to buy a home, even if it seems like you don’t have cash for a down payment. 3% down conventional loans are often the foundation for first time home buyer down payment assistance programs, which can reduce the down payment to 2%, 1% or even a no money down mortgage.

Mortgage Insurance

Mortgage insurance is what protects lenders from losses if a borrower defaults on their loan, resulting in a foreclosure. Private of Government MI is usually required for any mortgage with a down payment amount less than 20% (80% LTV). For low down payment loans, mortgage insurance can be called various names depending on the program. They all essentially do the same thing.

 What is Private Mortgage Insurance?

Private Mortgage Insurance, or PMI Insurance for short, is  mortgage insurance for conventional loans that’s provided by a ‘private’ company. Private mortgage insurance covers the lender for any foreclosure liabilities incurred for liquidating the property and mortgage. PMI Mortgage Insurance rates  vary on the loan type, term length, loan-to-value ratio, applicants credit score, and even income.

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