When buying a home a consumer has many different options when it comes to down payment funds for a mortgage transaction. There are many myths about down payment that should be clarified. The first common myth is that consumers need 20% down to buy a house. Having 20% down really only helps to avoid having mortgage insurance associated with your loan. There are options around mortgage insurance when a customer puts less than 20% down where consumers can choose to do what is called borrower paid single premium mortgage insurance to avoid having monthly mortgage insurance. This is typically an upfront charge the borrower has which allows them to buy out of the mortgage insurance for the life of the loan. This is typically only allowed on conventional loans.
FHA allows for 3.5% down payment and Conventional loans allow for 3% to 5% down. The conventional loans are typically going to be Fannie Mae or Freddie Mac loans. The 3% down payment is typically designed for first time homebuyers or homebuyers who have not bought a house in 3 years. To determine eligibility on these loans the loan officer can run an automated underwriting engine to determine eligibility.
In addition, there are many national, state, and county grant programs that allow consumers to utilize grants for down payment assistance should a consumer not have 3.5% or 3% for a down payment. Furthermore, a lot of these programs are not specifically for first time home buyers but home buyers in general. Many of these programs have specific guidelines that must be met in order to obtain the grants. For instance, some require that the consumer completes a home buying class before obtaining the grant. In addition, many of these programs have income limitations that must be meet to obtain the grant.
Furthermore, VA & USDA loans are an excellent option for eligible borrowers as they allow for 100% financing. In addition VA loans don’t carry mortgage insurance and USDA loan have discounted mortgage insurance. With both of these programs the borrower must determine they are qualified to obtain these loans. Now with VA allowing customers to obtain their COE (Certificate of Eligibility) online it helps expedite the pre-approval process for customers. With this being said potential borrowers can typically know immediately if they are pre-qualified for a VA loan and they don’t have to worry about sending in their DD214 to determine eligibility. In addition, USDA has income limitations and geographical limitations but this is certainly an excellent option for clients. The income limits and geographical limits can easily be found on the USDA website which helps to pre-qualify a client quickly.
When customers are buying a house they need to make sure that they consider all options when it comes to down payment assistance. This is critical for a consumer as it allows them to budget accordingly.
Should consumers have questions regarding loans and down payment they can reach me at [email protected]
Castle & Cooke Mortgage
NMLS ID #: 220562