There is a terrific new purchase program now available for buyers! It is a conventional loan option that only requires a 3% down payment and has NO monthly mortgage insurance "PMI". Too many buyers today assume they have to take FHA financing with its really expensive monthly mortgage insurance if they only have a limited down payment of around 3.5%, instead buyers can now purchase a home with only 3% down, with no monthly PMI, and get a low 30 year fixed rate! Here is what you need to know to qualify for this program.
Another positive sign for the Housing market
It is a positive sign for the housing market that buyers can now get conventional financing with only 3% down and No PMI.
It is another sign that the housing market is recovering well, as investors are now willing to offer these higher loan to value financing loan programs again that have been unavailable for the past several years.
Compare the Monthly Savings with 3% down and No PMI vs FHA
Here is an example below of a Conventional 3% down NO PMI purchase compared to a FHA 3.5% down purchase. In this scenario the buyer is looking to purchase a home for $400k.
On the left column is the conventional 3% down No PMI loan option. The buyer only has to put down $12k and can get a 30 year fixed rate of 3.99%. The buyers total monthly PITI payment is $2,243.
On the right hand side is the FHA 3.5% down payment option, the buyer has to put down $14k.The buyer can get a lower interest rate of 3.5%, but also has to pay FHA mortgage insurance of $409 a month. The FHA buyers total monthly PITI payment (including FHA mortgage insurance) is $2,566.
Therefore the conventional 3% down loan option with NO PMI saves the buyer $323 a month over the FHA loan.
Over the next 15 years, the Conventional buyer will save $56,485 over the FHA buyer (see below). Remember too, as of June 3rd the FHA buyer will pay FHA mortgage insurance for the life of the loan, see HERE
In Summary. Instead of taking the FHA loan option and paying the expensive FHA mortgage insurance each month, the conventional loan with No PMI will give the buyer the lowest monthly payment.
Or the buyer can turn around and put the additional $323 monthly savings into purchasing an extra $50k in home and still have the same monthly payment as the FHA buyer.
Frequently Asked Questions for the 3% Down Program with NO PMI
Here are the most frequently asked questions that buyers and real estate agents have in regards to the conventional 3% down No PMI loan option.
1. What is the maximum loan amount with 3% down?
The maximum loan with 3% down is $417k which is the conventional loan limit. This No PMI program is also available on jumbo loans up to 90%, for example in San Diego a buyer can finance up to $546k which is the Fannie Mae jumbo loan limit.
2. Can the buyer receive the 3% down payment as a gift?
Unfortunately NO, the 5% funds must come the buyer. The funds have to sourced and seasoned for 30 days.
3. Can you get 3% down with No PMI on 2nd homes or Investment Properties?
No, the 3% down is for Primary Residences only. On 2nd homes you only have to put down 10% to obtain the NO PMI payment option. On investment properties this program is not available, as you have to put down 20%, which eliminates the Mortgage insurance anyway.
4. How do you Eliminate the Mortgage Insurance?
It's very simple. All you have to do is take a slightly higher interest rate than normal, say from 3.625% to 3.99%, and the additional yield (lender rebate) at the higher rate eliminates the PMI.
5. What credit score is required to qualify?
Most lenders require a 720 credit score to qualify for this loan program.
6. Are there reserves required for this loan program?
Yes, but usually only one month of reserves, which is equal to a monthly mortgage payment.
7. Do condos qualify for the NO MI 5% down program?
Yes, you can qualify with only 3% down and get the No PMI on condos too.
8. But FHA rates are lower than this program?
FHA rates are lower, but when you factor in the very expensive FHA monthly mortgage insurance, the FHA overall monthly payment will always be higher than this 3% down No PMI option.
Other reasons why this program is a great option for buyers
There are some other great benefits to this program too that will help buyers have more homes to choose from.
1. For example, this conventional program is also a great option for buyers who want to purchase a condo in complexes that are NON FHA approved, so now buyers have more homes to choose from.
2. Conventional also does NOT have a anti-flip policy, so now you don't have to worry about the FHA's strict anti-flip policies either!
To get a buyer into contract these days it is important to get creative, and this program is one way to do that!
*REFINANCE TIP: This program also works the same for refinances, as borrowers with limited equity can now refinance up to 97% of their home without having to pay any mortgage insurance. As many homeowners are now starting to gain equity again, this is a great option to help them get a lower monthly payment.
If you have any questions about any of this information above, or you would like to get approved for financing, please do not hesitate to contact me directly at 858-442-2686.
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