Home Loan Options For Buyers Without A Large Down Payment

Written by Posted On Monday, 09 February 2015 00:24

Want to buy home but don't have the 20% for a down payment? A large percentage of Americans are unable to buy home due to not being able to make the initial down payment. Luckily there are new programs available from Fannie Mae, Freddie Mac and the FHA which make it easier to purchase a home even with a smaller down payment or an imperfect credit score.

Fannie Mae offers a program that allows first-time buyers to purchase a home with as little as 3% down. The program is called the 97% LTV options program and comes with income limits. In addition, home buyers will have to undergo mandatory pre and post purchase education and delinquency counseling in order to qualify. Home buyers will also need to purchase private mortgage insurance at a higher cost than those with conventional mortgages.

Two other programs available to consumers are Fannie Mae's My Community Mortgage Program and Freddie Mac's Home Possible Program. These two programs are targeted to individuals with lower incomes which are determined according to the area of residence. Both programs allow the buyer to take advantage of lower interest rates with a lower private mortgage insurance cost. 

Lastly there is the FHA program; this program requires a down payment with at least 3.5% and allows credit scores of 580. It's also more flexible in terms of down payment and credit score requirements compared to Fannie Mae and Freddie Mac. LoanDepot home loans reports that rates for a 30-year fixed mortgage are currently at 3.80% which is slightly higher than it was around December when rates dipped below 3%.

Not sure how much house you can afford? Consider getting pre-approved or getting pre-qualified. We interviewed JC with Pre Approval Guide who states "Getting pre approved lets you know exactly how much you'll qualify for which lets you create a budget. This way you won't waste time looking at homes beyond your price range. A pre-approval letter can also give you more bargaining power when negotiating with a seller because it shows that you are serious and have the funds in place."

Some buyers may choose to wait until rates dip a bit lower before plunging in. With the FHA program, buyers will have to pay a mortgage premium payment of 1.75% of the loan in addition to private mortgage insurance cost at 0.85%.





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