First-time homebuyers may think that they must raise the 20% down payment that is required to qualify for loans from the best mortgage lenders in Utah. However, there are other options to pursue when you cannot afford the 20% down payment right now.
If you do not have enough savings to pay the 20% down payment, a much faster option could be the low down payment or no down payment mortgage types.
Mortgage loans with low down payment allow the first time home buyers to purchase a home with as low as 3.5%, so long as one can pay the standard closing costs.
Thus, saving for a 20% down payment does not have to be an impediment to getting a home mortgage.
In this post, we feature your options when it comes to applying for the low down payment mortgage. We will also let you know the conditions you are expected to meet to qualify for these types of mortgage.
The Low down Payment Options
In this section, we will cover the available options if you do not enough money to pay the 20% mortgage down payment.
The FHA Home Loan
The Federal Housing Administration insures low down payment mortgages available through selected lenders. The FHA loan was designed to assist the low-to-moderate income earners to buy decent homes. The FHA home loan requires a lower down payment while the qualification requirements are less strict compared to conventional home loans.
Therefore, if you qualify for the FHA home loan, you can borrow up to 96.5 % of the value you need to purchase a home. However, it is important noting that the Federal Housing Administration does not actually lend you money to purchase a home. Instead, you get access to the FHA backed home loan through the FHA-approved lenders, who include the local banks within Utah. Therefore, the FHA is only a guarantor of the loan.
In addition, the FHA guarantee on the low down payment does not come for free. You have to pay the mortgage insurance premium payments to the FHA. Thus, if you default the mortgage repayments, the lender is guaranteed that the FHA will pay defaulted loans
The FHA requirements to qualify for the mortgage include:
- Credit Score of not less than 580
- Must be able to make a down payment of 3.5% or more
- Have a debt/income ratio of less than 43%
- Show a willingness to pay monthly mortgage insurance
Note that homebuyers who have the ability to pay off their loans quicker and opt for the short-term mortgage benefit from lower FHA mortgage insurance premiums.
- The conventional 97 Mortgage
The conventional 97 loan is a low down payment mortgage for building a home or buying one. The borrower is required to pay only 3 percent as the down payment. This means that you will get up to 97% of funding from the lender. The conventional 97 programs was created by Fannie Mae and is only for first-time homebuyers. Although the program is meant to allow first time home buyers the ability to own a home on a low down payment, it does not necessarily mean that previous home buyers do not qualify. If you have owned a home in the past, this low down payment mortgage is more forgiving in that you can still borrow, so long as you have not owned a property in the last three years.
The conventional 97 does not require that the applicants complete the pre-purchase homeownership education, which is mandatory for some low down payment mortgages.
Here is a list of the requirements to apply for the Conventional 97 home mortgage:
- A debt to income ratio of 43%
- Ensure that at least one of the borrowers is a first-time homebuyer
- Have a 680 typical FICO score, which is dependent on the borrower’s financial profile
The conventional 97 low down payment mortgage does not set an income limit to qualify. This is unlike other low down payment mortgages that require a certain income limit.
The low down payment home mortgages have helped new home buyers to achieve the American dream of owning a home someday. These home mortgage options come with a set of advantages and disadvantages.
Here are some of the pros of low down payment home mortgage:
- Makes home buying easier: The truth is that mortgage loans with low down payment are favorable to the low to medium-income earners
- Allows homebuyers to keep more cash on hand: even if you have enough money to make the 20% down payment, you may want to have some money in hand to cater for other expenses. As such, with the low down payment mortgage, you can keep some money at hand
- Allow you to buy a home sooner: with the no down payment loan, you are able to purchase a home sooner, other than waiting until you can afford the 20% down payment.
Key Take Away
There you go! If you are longing to own a home one day, the dream just got closer. With the low down payment home mortgage, you can buy a home. Other options include the zero down payment home mortgages that include the USDA home loan and the VA home loan. The US Department of Agriculture backs the USDA home loan while the VA loan is backed by the Department of Veteran Affairs. Thus, if you do not qualify for the low down payment mortgage to buy a home, you can take the VA loan or the USDA home loan, which have less stringent requirements.