What You Need To Know About Low Down Payments for Your Home
Buying a House With Little to No Money Down
With new regulations put on FHA loans in the wake of the housing market crash, ongoing low interest rates, and lack of available inventory in the majority of the U.S. real estate market, lenders are now offering their own private low down payment products to provide incentives to buyers, and to make it easier for younger people to get into the housing market. And, if data from the website of the U.S. Department of Housing and Urban Development is any indicator, these incentives seem to be working.
Low down payment mortgages are a terrific way to get into more house than you could normally afford under traditional 20% down terms, and make it possible for many that otherwise would have to spend years saving up a down payment to get into a home faster. However, they are not without their costs and attendant risks. Here’s what you need to know about low down payments when buying a home.
Traditionally the vehicle of choice for first-time home buyers, young buyers, and buyers with less than stellar credit, FHA loans—known primarily for their low down payment and FICO score requirements—have come under additional restrictions and regulations since the housing market crashed in 2008. These restrictions have in turn limited the number of lenders who can get FHA backed loans approved.
These FHA loans still require a modest 3.5% down payment currently., but they also require mortgage insurance in two forms: a lump sum up front, and an ongoing payment. To learn more about FHA loans, check out this article on the Bankrate website.
Three Percent Down
If for some reason you cannot qualify for an FHA-backed loan, or are working with a lender who cannot get one for you, you may still qualify for low-down payment privately secured financing. According to a recent article on the Nerd Wallet website, many mortgage companies are now offering their own mortgage-insurance secured 3% down loans.
These loans are tailored to be bought by mortgage clearing houses Freddie Mac and Fannie Mae, and it is these companies that determine the rate they are willing to allow.
Mortgage Insurance vs. Equity
If you do not have the funds to put a larger down payment into the purchase of your home, these private and publicly-secured programs can represent a great way to get into a first home. If, however, you have the money to put a traditional 20% down on your home, it is strongly encouraged that you do so.
Why pay for monthly mortgage insurance that does nothing to pay down the principle of your loan, when you can invest directly in the equity of your home with a larger down payment? The money you save in the long run will be your own.
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