Low to moderate income home shoppers represent a large group of 21st century first time buyers. Regrettably, they’re a group that was also sidelined in the recent housing recovery due to overly strict loan requirements and limited low down payment mortgage options offered. The tight constraints, fundamentally a fallout of the Dodd-Frank banking regulations and litigation settlements, pushed mortgage lenders towards strict guidelines. However, an easing of rules and the rise of low-risk, low down payment mortgage loans offer a silver lining for millions of these first-time buyers. The reemergence of the 3% down mortgage loans signals a positive turn for first-time home buyers.
Unpacking 3.5% Down Payment FHA Loans
FHA loans have gained ground due to their friendly requirements, demanding only a 3.5% down payment and a minimum credit score of 580 for some lenders. For borrowers who fall below this credit threshold, a minimum of 10% down is required. An added advantage of FHA loans is the allowance for 6% seller concessions, implying the seller can cover up to 6% of the buyer’s closing costs.
Exploring 3% Down Payment Conventional Loans
Low down payment conventional loans offer first-time buyers the stability of fixed-rate mortgages and loan amounts of up to $424,100. These loans offer down payment assistance in various ways, including gifts, grants, and community assistance programs. The minimum credit score requirement is 620, similar to other conforming mortgage programs. All conventional loans exceeding 80% loan-to-value (LTV) require private mortgage insurance (PMI), which can be incorporated into the loan amount or paid separately.
- Conventional Loan Down Payment Requirements
- Loan Requirements for Conventional Loans
- Conventional Loan Programs
Comparing Low Down Payment Loans: Conventional 97% Mortgage Loans or FHA Loans?
Among the many low down payment mortgage options available today, the most commonly opted for are the FHA 3.5% down mortgage program and the Conventional 97% mortgage program. Your choice between the two depends on your individual goals, qualifications, and circumstances.
Understanding 3% Down Mortgage Requirements
Your credit score can be a determining factor for your loan eligibility. FHA loan programs cater to borrowers with FICO credit scores of 580 or higher, while conventional 97% loan programs generally require a minimum FICO score of 620 or higher. If your credit score falls between 580 and 620, an FHA mortgage is likely your only option. However, as your credit score crosses 620, the Conventional 97 mortgage may become more attractive.
Considering Mortgage Insurance
Your credit scores play a significant role in determining which 3% down mortgage provides lower insurance fees. Good to excellent credit scores often favor the Conventional 97 loans, which tend to cost less than FHA loans over the long term. At the same time, borrowers with average credit scores generally benefit more from FHA loan mortgage insurance.
