If you dream of owning your own home, but are concerned that you cannot secure financing, fret not. 30-year mortgage rates have fallen to their lowest levels since 2013 and currently below 4% across the country.
The monthly payment is not the barrier to home ownership for most first-time home buyers—it’s the assumption of a 20% down payment. Home buyers who put 20% down avoid the need for private mortgage insurance (PMI) which is an insurance policy homeowners must pay in order to protect a lender in the event of default. The factors that impact mortgage insurance costs are the down payment, the borrower’s credit score and the state in which the borrower resides.
Many home buyers opt to pay PMI to avoid putting 20% down. Instead of focusing on whether or not you have enough money to put down on a home, hone in on an affordable monthly budget for the mortgage, taxes and other homeownership costs such as monthly association fees. The last thing you want to do is end up “house poor” which is the financial industry term for homeowners who must scrape funds together for life’s inevitable emergencies.
There are five mortgages that require little or zero money down:
No down payment VA loan- The VA guarantees purchase mortgages without a down payment or mortgage insurance for qualified veterans. The funding fee can be rolled into the loan amount paid by the borrower. The VA funding fee is dependent on whether it’s the veteran’s first VA loan and whether he or she served in the regular military, the Reserves or the National Guard.
No down payment Navy Federal loan- The Navy Federal Credit Union offers 100% financing to qualified members buying primary homes. The eligibility is exclusive for members of the military, some civilian employees of the military and U.S. Department of Defense, and family members. The Navy Federal’s funding fee is 1.75% and less than the VA’s funding fees.
No down payment USDA loan- Surprisingly, the US Department of Agriculture’s Rural Development mortgage guarantee program is not confined to farmland. This is most likely why the program runs out of money before the fiscal year ends. There are restrictions on household income and geographical limits. While the program was intended for first-time home buyers, there are exceptions. The actual USDA mortgage is funded by a bank and instead of mortgage insurance, the USDA levies a 2% upfront guarantee fee which can be rolled into the total loan amount.
Low down payment loan with mortgage insurance- Qualified borrowers can put as low as 3% down with PMI. One advantage of opting for PMI is that once the mortgage balance is under 80% of the home’s value, PMI can be cancelled.
Low down payment FHA loan- This option is available to people with imperfect credit histories and requires a down payment of 3.5%. The FHA charges a premium of 1.75% of the mortgage amount and there is an annual premium of 1.25% of the mortgage amount.