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In the current post-housing crisis era, many changes have occurred in the mortgage industry, most of which are for the protection of the consumer. Change is a good thing especially when it is for our benefit. However, many consumers are not aware that these changes did not affect many of the required down payments for a home purchase. Low and no down payment mortgages are still available for home purchases in all markets across the country.
1. Conventional Mortgages – Conventional loans are very desirable because the mortgage rates are low and competitive. The required down payment for a conventional mortgage is 20%. However, this does not mean that a lower down payment is not acceptable. Anything amount below 20% will require that the borrower pay private mortgage insurance (PMI). Private mortgage insurance protects the lender in case of default of the loan. With conventional mortgages, the minimum down payment is 5% which amount must come from the borrower’s own funds. Gifts are acceptable with conventional mortgages, but they cannot be used for the down payment unless they are equal to 20% or more of the sale price. An acceptable donor may contribute a personal financial gift to help pay for the closing costs or to supplement the reserves that are required by mortgage guidelines.
2. FHA Mortgages – Mortgage rates for FHA loans are often very close to rates offered for conventional loans and can even be lower at times. The minimum down payment for FHA mortgages is 3.5% in all U.S. markets. FHA, the Federal Housing Administration, insures loans which protects lenders against default. Borrowers who use FHA loans must pay an upfront mortgage insurance premium which is part of the closing costs. In addition, FHA charges an annual mortgage insurance premium which is divided into twelve equal payments and is part of the monthly mortgage bill. However, FHA’s low down payment of 3.5% can come entirely from acceptable gift funds that must be sourced according to FHA guidelines.
3. VA Loans – VA loans are insured by the U.S. Department of Veteran Affairs and are available to military borrowers across the nation. Military borrowers include active duty, honorably discharged service personnel, home buyers who have been in the reserves or national guard for at least six year and spouses of service members killed in the line of duty. Similar to FHA loans, the VA insures these mortgages in case of default. The down payment requirement for VA loans is $0 (no down payment). These loans do have a funding fee that is collected at closing, however, no other mortgage insurance is required on an annual or monthly basis.
While these are the main mortgage programs available with low or no down payment requirements, there are also other programs, such as USDA mortgages which provide 100% financing and are available in certain areas of the country. HUD’s Good Neighbor Next Door Program is available in specific revitalization areas for law enforcement officers, pre-Kindergarten through 12th grade teachers and firefighters/emergency medical technicians. Home buyers should also research housing initiatives for first time home buyers in the state, county and city in which the property is located to determine if there are any housing grants or loans available. When utilized, these can often reduce the cash that a borrower needs to put out to a minimum and, in some cases depending on the program, may produce a $0 down payment loan.
It is always best for consumers to find out as much information as possible when it is part of their plan to become a homeowner. The American Dream of home ownership may not be as far off as one might believe.
Author Bio: Rosemary has been writing since 2010 for FreeRateUpdate.com, a company that matches consumers with banks and lenders offering low mortgage rates. Previous to her writing career, Rosemary spent 13 years working hands-on in the mortgage industry as a mortgage loan analyst, mortgage processor, property manager, and a mortgage underwriter.
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