The Low Down 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% 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 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 home owners insurance is $50 per month. Further, let’s use 4.25% for VA, FHA and USDA and 4.75% on Conventional.
On a VA Home Loan with a 2.15% up front 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 up front mortgage insurance is $3000 based on the $150,000 purchase price. The monthly mortgage insurance is $50 for the first year. The monthly mortgage insurance is re calculated 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% Guaranteed Rural Housing Home Loan.
FHA allows the seller to pay the borrowers’ closing costs, up to 6% of the purchase price. There is a required 3.5% ($5250) down payment which can be a gift. The up front mortgage insurance premium is $2533 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 $1010.23.
Conventional loans now allow for their 5% ($7500) down payment to be gift funds. There is no up front 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.
Written by: JoAnn Moore, Licensed Mortgage Professional, NMLS #165477, Certified Military Housing Specialist. The Mortgage Market of Delaware. Office 302.855.1306, Cell 302.236.1229, MMODJoAnn@aol.com.