For every home purchase, most loan programs require a down payment. It all depends on which program you can qualify for.
Lets go over each program:
1. FHA: Minimum Down Payment Requirement 3.5% of Purchase Price
2. Conventional: Minimum Down Payment Required: 5% of Purchase Price
3. HomeReady/HomePossible: Minimum Down Payment Required: 3% of Purchase Price.
1. Lets go over the FHA program and who, in my opinion, is ideal for. This loan is ideal for borrowers who have higher debt and lower credit scores. Most lenders will accept a credit score of 580. There is a one time funding fee of 1.75% of the loan amount either added to your loan or you may pay it out of pocket. The mortgage insurance factor is always 0.85% of the initial loan amount, no matter what credit score. The downside, currently, you are not allowed to remove the mortgage insurance without refinancing to a conventional loan. There is also a maximum loan amount that FHA allows per county, so please make sure what is the limit in your county. I recently read an article stating FHA is trying to pass a rule to allow borrowers to remove the mortgage insurance, but as of today’s blog, there is no certainty if it will pass. If you believe your credit score is less than average but more than 580 and/or your monthly debt is more than 50% but no more than about 57% then this may be your loan.
2. For the Conventional Program, this is your standard Fannie/Freddie Loan with a minimum 5% down payment. Most lenders require a minimum of a 620 credit score. Your mortgage insurance rate is based on your credit score, so the higher the score, the lower the mortgage insurance. Most lenders allow up to 50% DTI (Debt to Income) Ratio also depends on your credit score. You are allowed to remove the mortgage insurance once you surpass 22% equity either by paying down the principal or appreciation of value. This will be determined by your lender/investor. There are also maximum loan limits per county, so please make sure what is the maximum before the loan turns into a Jumbo Loan.
3. HomeReady/HomePossible: These are conventional programs created by Fannie/Freddie to compete with FHA. The minimum down payment for these loans is 3%. Most lenders require a minimum of a 620 credit score. There are income limits per area so please visit the HomeReady website, (https://homeready- eligibility.fanniemae.com/homeready/). Input the address of the property you are purchasing/refinancing and see what the income limits are. Before, there were some areas with no income limits, but both companies have removed the “No-Limits” as of the end of July of 2019. Once you have the income limit for your home, you can proceed if you fit their income limit. The mortgage insurance is also dependent on your credit score, so if you credit is in the lower range, prepare to pay. You are allowed to remove the mortgage insurance once you surpass 22% equity either by paying down the principal or appreciation of value. This will be determined by your lender/investor.
I have not mentioned this program as this will only qualify if you are in a designated rural zone. I am talking about the USDA program. This program is 0% down….yes you read it correctly….0% down. Most lenders require a credit score of 620 with a monthly DTI of 45%. There is also an income limit for each zone, so please visit the USDA website and input the address of the subject property. There is a funding fee of 1% and a monthly insurance factor of 0.35%.
Please contact us with any questions about these loans and other loans we offer here at GDM Mortgage Corp. (407) 930-4490
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