The down payment is often one of the major roadblocks to getting the home of one’s dreams. Many lenders are starting to back away from the FHA loan. Lenders have stated that regulations have caused them to back away from FHA loans. Many banks have also taken themselves out of the FHA market by putting extra credit requirements on top of the lending standards set by the FHA.
Get a Down Payment for Thousands of Dollars
Renters want to put more money in their emergency fund as well as save for retirement and their children’s education. They would rather do that than save for a down payment. Twenty percent is typically the minimum required down payment. That is a major expense. For example, if a home cost $300,000, then one will have to make a down payment of $60,000.
However, if that number dropped down to three percent, then it will seem more feasible. For example, one would have to make a $10,000 down payment on a $300,000 loan. People who get a FHA loan can get a down payment for just 3.5 percent. There are two other programs that allow you to get a loan for a three percent down payment. You can get a loan backed by Freddie Mac and Fannie Mae.
This information can be confusing. Fortunately, we can simplify this information.
Home Loans That Lenders Like
Freddie, Fannie and FHA all sound the same. However, there are differences between the three lenders. Many lenders have turned their backs on FHA loans, but they like Freddie and Fannie-backed mortgages. Lenders do not have to worry about all of the restrictions and regulations of FHA-backed mortgages.
FHA loans are ideal for some buyers such as people who have a credit score that is below 720. Borrowers can also get help with their down payment. However, there are some restrictions that have been set by the programs. People are allowed to borrow up to 97 percent of the value of the home. One buyer has to be a first-time homebuyer, which means that the person has not owned a home within the past three years.
You will need to purchase private mortgage insurance. However, you can cancel your private mortgage insurance if you have 20 percent equity in your home with a Freddie Mae or Freddie Mac-backed loan. You will have to pay FHA mortgage insurance the entire time that you have the loan.
If you are not a first-time homebuyer, then there are other programs that can help you get a down payment for less than five percent.
What is the Bottom Line?
FHA loans are still an option for first-time homebuyers whose credit is not a perfect. However, if you have great credit, then you can get Freddie and Fannie-backed loans. You can get a down payment for less than 20 percent. Furthermore, it is a good idea to compare lenders.