Carey Ann Cyr
Area Sales Manager | NMLS #160055
Branch NMLS #1093019
Posted On December 06, 2018
Last month, the Federal Housing Administration (FHA) Commissioner Brian Montgomery announced that despite economic momentum, the FHA would not be cutting mortgage insurance premiums this year. FHA Loans require an upfront mortgage insurance premium (MIP) payment, plus mortgage insurance throughout the life of the loan. Any reduction to Mortgage Insurance Premiums makes FHA Loans more affordable. FHA Loans are popular amongst first-time home buyers because of their low down payment requirements.
Commissioner Montgomery explained, “We do have to be realistic about the fact that that is still a relatively thin margin. While the MMI Fund is sound at this point in time, I think we’re still far away from being in a position to consider any reduction in our mortgage insurance premiums.” With no MIP cuts on the horizon, what other low down payment options do home buyers have?
The FHA loan is a government-sponsored loan, meaning it is guaranteed by the federal government if the home buyer defaults on their mortgage payment. Because of this risk, government-sponsored loans usually carry mortgage insurance. Other government-sponsored options with no to low down payment options include the VA Loan and the USDA Loan. The VA Loan is available to qualifying active-duty military, returning Veterans, and surviving spouses and is guaranteed by the United States Department of Veterans Affairs. VA Loans do not require a down payment or monthly mortgage insurance, but they do require an upfront funding fee. The home buyer has the option to pay the funding fee upfront or finance it into the overall cost of the loan. The USDA Loan is limited to properties in rural or suburban areas designated by the United States Department of Agriculture. The USDA Loan does not require a down payment, but it will require monthly mortgage insurance. Typically, the mortgage insurance payment is .4%, much lower than a conventional mortgage loan. The USDA Loan will also require an upfront funding fee and an annual guarantee fee.
There are also conventional financing low down payment options. Freddie Mac’s HomePossible mortgage was designed for a variety of circumstances including first-time home buyers and move-up borrowers. It allows flexible sources of funds for the down payment, with down payments as low as 3%. Fannie Mae’s HomeReady mortgage also has a low down payment requirement of 3% plus cancellable mortgage insurance. Both of these loan programs also have more lenient credit standards, making them an attractive option for a first-time home buyer or a home buyer in the process of repairing their credit.
Financing a home with a low down payment mortgage has become increasingly common, and while a 20% down payment can make your offer more competitive, it’s not a requirement to buy a home. If you’d like to explore low down payment mortgage options, consult a local loan officer.