Monday, January 12, 2015 - Article by: Michael Zuren - American Midwest Mortgage -
One of the biggest obstacles in homeownership is the down payment. First-time homebuyers typically do not have the advantages of second-time buyers. Second-time buyers often have equity from the sale of their homes or investments to draw from for down payments. There are various down payment assistance programs available but they often have income, sales price, and repayment requirements.
The Federal Housing Administration (FHA), Veterans Administration (VA), United States Department of Agriculture (USDA), and Fannie Mae/Freddie Mac (conventional financing) all have minimal down payment options for homebuyers. Fannie Mae and Freddie Mac are the most recent sudo-government agencies to launch a minimal down payment assistance program. Below is a list of the current minimum down payment mortgage options available for each financing type.
FHA financing requires a minimum of 3.50% down. FHA allows the down payment funds for closing costs to be gifted from a family member or nonprofit organization. This financing type requires upfront and monthly mortgage insurance. FHA offers one to four family residential owner occupied financing only.
Honorably discharged veterans or active-duty personnel in the US military who meet certain qualifications are eligible for zero down mortgage financing through the VA. This financing type has no monthly mortgage insurance but requires an upfront funding fee unless the veteran is disabled.
The USDA loan program is offered by the United States Department of Agriculture. This loan type offers zero down financing for owner-occupied properties in designated rural areas and has income limitations. USDA loans have an upfront and monthly fee. There are two types of USDA loans which include guaranteed housing loans and direct loans.
A conventional loan is a loan that is not backed by the government. Conforming conventional loans are backed by either Fannie Mae or Freddie Mac. Freddie Mac launched the Home Possible Advantage Program in December 2014, which allows low to moderate income homebuyers that are purchasing a single family owner occupied property financing up to 97% of the sales price (restrictions apply). Fannie Mae launched a similar program also in December 2014 called the My Community Mortgage Program. This program also requires a minimum 3% down payment with similar qualification requirement as the Home Possible Advantage Program. Both programs require homebuyers to complete a home buyer education course from an acceptable provider. Private mortgage insurance (PMI) is required unless there is a 20% down payment or 20% equity for a refinance.
Each of these loan types was created to reduce the barriers to homeownership. It is always in the best interest of a homebuyer to be pre-approved prior to looking for a new home. A knowledgeable loan officer should be able to explain the different loan types, down payment requirements, and any down payment assistance programs you may qualify for.
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