The lowdown on no and low down payment home loans
If you listen and believe the national media reports regarding home loans, you may be inclined to think you need 20 percent down on a home purchase, and home ownership is out of reach. But, in reality, there are several loan programs with little and even no down payment required.
If a borrower has a middle credit score of at least 620, has some funds in a bank account and earns enough income to support the housing payment, then it isn’t a big leap to qualify for and obtain a loan to purchase a home.
For comparison purposes, let’s say the purchase price is $150,000, the property taxes are $70 per month and the homeowners insurance is $50 per month. Further, let’s use 4.25 percent for Veterans Administration, Federal Housing Administration and U.S. Department of Agriculture loan interest and 4.75 percent on conventional loans.
On a VA home loan with a 2.15 percent upfront funding fee added to the loan amount, the principal and interest is $753.77. Add the $120 for taxes and insurance, which makes the total housing payment $873.77. The seller can pay all of the borrowers' closing costs. Plus, there is no down payment requirement.
USDA allows the seller to pay all of the borrowers’ closing costs as well. The upfront mortgage insurance is $3,000 based on the $150,000 purchase price. The monthly mortgage insurance is $50 for the first year. The monthly mortgage insurance is recalculated annually and reduces each year. The principal and interest is $752.67 plus the $50 mortgage insurance and $120 for taxes and insurance. The total housing payment is $922.67. There is no down payment required on the USDA 100 percent guaranteed Rural Housing home loan.
FHA allows the seller to pay the borrowers’ closing costs, up to 6 percent of the purchase price. There is a required 3.5 percent ($5,250) down payment which can be a gift. The upfront mortgage insurance premium is $2,533 which is added to the loan amount. The principal and interest is $724.54. Mortgage insurance is $165.69 plus $120 for the taxes and insurance. This makes the total housing payment $1,010.23.
Conventional loans now allow for their 5 percent ($7,500) down payment to be gift funds. There is no upfront mortgage insurance. The monthly mortgage insurance is $105.69. Principal and interest is $743.35. Once you add the $105.69 mortgage insurance, and $120 for the taxes and insurance, the total housing payment is $969.04.
As you can see, it is really much easier to obtain a home loan than you might have thought.
JoAnn Moore is a Licensed Mortgage Professional, and Certified Military Housing Specialist with The Mortgage Market of Delaware. Office 302-855-1306, cell 302-236-1229, MMODJoAnn@aol.com.