The soaring home prices all around the country have made it more difficult for buyers to come up with enough money for a down payment. But lenders have caught on to the idea that there are plenty of buyers out there who aren’t in danger of defaulting on their loans, they just need a little wiggle room when it comes to the hard cash they have to bring to closing.
That means we can all say hello to the low down payment mortgage option and its many variations.
The most common type of low down payment mortgage is the government-backed Federal Housing Authority or FHA loan. Even though they usually require only a minimum of 3.5% down, they come with the huge downside of requiring mortgage insurance for the life of the loan for anyone who puts down less than 20%. Yep, that means if you get to the point of having paid off enough of the mortgage to reach 20% equity you are still required to pay the mortgage insurance. The purpose of the insurance is to protect the lender in case you default on your loan and the only way to get out of it is to refinance once you paid enough down to cross the 20% threshold. For FHA loans the standard rate for mortgage insurance is 0.8% annually (usually divided in to twelve payments). Though with private lenders it can vary from 0.5% to 1.5% (sometimes even higher). I’ve listed 12 programs below that either don’t come with the insurance requirement, have reduced rates, or some other benefit that might make it worthwhile.
It’s important to keep in mind that just because a mortgage has a low down payment option that doesn’t necessarily mean it is a wise financial move. You can end up being charged a higher interest rate over the life of the loan or have extra fees added on to the initial amount in many cases. I made sure to list ones here that don’t do that to buyers. They are open to most types of buyers but largely cater to first-timers so they have lower minimum credit requirements while still providing competitive interest rates.
So what are the interest rates on the list? Alas, that is the one factor I can’t include simply because it is the variable lenders won’t commit to until they have seen the entire financial picture of an applicant. There is one exception, NACA, that charges the same rates regardless of credit score so check them out if you’re at the lower end of the FICO spectrum.
Whether you are a first-time buyer or a move-up buyer there are still plenty of options for getting a mortgage that doesn’t come with the same stringent requirements home loans used to have five or more years ago. Lenders are coming up with safe ways to get buyers a home even if they don’t have a lot of cash and they aren’t charging outrageous rates to make it happen. You could be a homeowner sooner than you thought possible.