Papillion NE Low Down Payment Mortgage, who does them?
Are you looking for a low down payment mortgage in Papillion NE? There are several options and programs that can get you in a home with little or no down payment. We go through several programs below and explain the pros and cons of each one.
Conventional Home Loan Options
Conventional financing is usually considered the loan program that requires 20% down. While there are benefits to putting 20% down, conventional financing actually offers several options with as little as 3% down.
Fannie Mae’s Home Ready and Freddie Mac’s Home Possible
Both Fannie and Freddie offer programs designed to help buyers with moderate income purchase homes. Fannie’s Home Ready and Freddie’s Home Possible have subtle differences, but for the most part they are the same program. Both are designed for buyers that make less than 80% of the Area Median Income (to look up Area Income go HERE) and meet conventional credit guidelines. If you qualify for the Home Ready or Home Possible program, you can purchase a home with as little as 3% down. An added benefit of these programs is discounted mortgage insurance. The MI will be lower than standard conventional MI for qualified buyers. Home Ready and Home Possible are not limited to first time home buyers. Anyone who meets the income requirements can use both programs.
Fannie and Freddie both allow buyers to receive funds from family and people with “an interest in the buyer”. This is a fairly broad list of people and means that almost anyone can “gift” you the funds for your loan making it possible to get in the home with nothing out of pocket.
Freddie Mac’s Home One and Fannie Mae’s Standard 3% Down Loan
If your income is not below the 80% of the Area Median Income, you still have low down payment options with conventional financing. Freddie and Fannie have 3% down payment loans for buyers who do not meet the Home Ready and Home Possible income limits. The guidelines on these programs are the same as a standard conventional loan, but there are a few things to consider. Freddie’s Home One and Fannie’s Standard 3% Down Loan are both first time home buyer programs. A first time home buyer is anyone who has not owned a house in the last three years. It does not have to be your first home ever, but you cannot have owned property for a while to qualify. The Home One and Standard 3% loan also do not offer discounted mortgage insurance. The MI will be based on a standard conventional quote and with less down it can be a bit high. To get an accurate quote for all conventional programs you will need to contact a local mortgage lender.
FHA Home Loan Options
This is the original low down payment loan program. Created during the Great Depression, it is a government subsidized program to help buyers with less than perfect credit. If you do not qualify for one of the conventional loan options, FHA is an excellent option.
FHA 3.5% down
The FHA program is not a first time home buyer program. Anyone meets FHA’s credit and debt ratio requirements can use the program. FHA also has no income restrictions making it an option for buyers who do not meet Home Ready or Home Possible AMI guidelines.
A few other advantages FHA has over conventional low down payment options is its credit and debt ratio requirements. All of the low down payment conventional options are going to be more strict on credit score and debt ratios. Even if you meet conventional income limits, or are a first time home buyer, you may not qualify due to scores. Fannie and Freddie both have automated approval systems that must issue an Approve/Eligible to use their program. Both are sensitive to credit score and debt ratios especially once we start using the low down payment option. However, FHA will allow scores as low as 580 and still offer the 3.5% down payment. The FHA program will also go all the way up to 56.99% on Total Debt Ratios and still qualify you for financing.
FHA allows gift fund for the down payment so a buyer could purchase a home with no money out of pocket. Thought not a first time home buyer program, FHA is usually the go to program for first time home buyers due to easier credit and income guidelines. However there are just a few disadvantages to FHA over conventional.
FHA mortgage insurance
FHA charges a flat percentage monthly to use the program. Unlike conventional, that mortgage insurance rate does not fluctuate based on credit score. This can be a positive for buyers with low credit, but one issue with FHA MI is it never goes away. Conventional home loans will drop the mortgage insurance as soon as the homeowner has 20% equity in a property. FHA on the other hand will charge mortgage insurance for the life of the loan. Because mortgage insurance is not a benefit to the home owner, getting rid of it quickly is the goal. On FHA this can only be done by refinancing into a conventional loan at a later date.
FHA Upfront Mortgage insurance
In addition to monthly mortgage insurance, FHA charges a flat 1.75% fee at close for mortgage insurance. This amount is rolled into the loan (buyers do not have to bring that money to close), but it is still a fee and another disadvantage over conventional.
FHA is still the go to program for low down payment options. It is flexible on credit, asset reserves, and income to debt ratios even at the 3.5% down payment. It is the best option for buyers who do not meet any of the conventional 3% down program guidelines. In some cases, such as scores below 700, FHA might be the better option even for those that qualify for conventional low down payment financing.
VA Loans
The VA loan program is for active military and veterans that meet certain eligibility requirements. If you meet VA guidelines for length of service, you can qualify for a no down payment VA loan. The VA program offers low rates with no down payment and no mortgage insurance. It is flexible on credit score (down to 620) and allows debt ratios much higher than conventional or even FHA. If you do qualify for the VA program, it is typically the best mortgage option.
While the VA does offer low rates and no monthly mortgage insurance, there are a few downsides to consider.
VA usually charges a VA funding fee
While there is no monthly mortgage insurance, VA can charge a funding fee. Just like the FHA Upfront MI fee, this is rolled into the loan. If you purchase a 200k home with no down payment your VA loan will be 200k plus any funding fee. This means your loan amount could be more than the value of your home.
VA funding fee guidelines
Depending on how many times your have used your VA eligibility, and what type of military service you performed, the VA funding fee can be any where from 1.25% of the loan amount to 3.3% of the loan amount. This is rolled into the loan and can be a significant part of your loan.
VA funding fee exemptions
VA will waive the funding fee for certain eligible buyers. This usually has to do with a veteran’s disability status. If you are currently receiving military disability, and meet VA guidelines, you may be exempt from the funding fee. A mortgage loan officer can pull your eligibility with just a bit of personal information.
VA IRRRL (Interest Rate Reduction Refinance Loan)
Another advantage of VA is the VA IRRRL program. This allows home owners with a current VA loan to refinance with minimal documentation or credit requirements. It is a quick and easy way to get a lower mortgage rate in a dropping rate environment. The VA IRRRL charges a .5% funding fee, unless you are exempt, so make sure the savings is worth the additional charge.
There are several low down payment options available to home buyers in Papillion NE. If you are looking to purchase a home in Papillion, we can review your credit and see which one best fits your needs.
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