There was a time when few banks made mortgage loans. The banks that did make mortgage loans usually required a down payment of 50% and those loans often came with a balloon payment for the remaining balance due after a year or two.
Today’s market is very different.
The establishment of Fannie Mae (FNMA) and Freddie Mac (FHLMC) and the standardization of loan criteria helped stabilize the secondary housing market where many loans are bought and sold.
Still, many potential home buyers mistakenly believe they need a 20% down payment to purchase a home. 20% down on a conventional loan has been a standard for a long time so it’s easy to see how people could be confused. Putting 20% down on a loan offers better rates and no mortgage insurance. But there are plenty of options for borrowers who have less than 20% to put down on a loan.
There are programs that require no money down but every loan has features and advantages you will want to consider. Some of these loans are through conventional lenders while others are through government programs.
Conventional loans refer to loans made by a bank or lender that are not insured or guaranteed by the government. These loans will still adhere to the guidelines established by Fannie Mae and Freddie Mac so they are considered conforming loans and will be eligible for sale on the secondary market.
Lenders make money by making loans. So there is an incentive to make loans and lenders have responded with a tremendous array of products.
There are a lot of conventional loan options for borrowers with little down payment. You can put down 5%, 3% or even as little as 1%, but the less money you put down on a loan the higher the rate, fees, and mortgage insurance will be on that loan.
FEDERAL HOUSING ADMINISTRATION (FHA) LOANS
FHA loans refer to loans made by approved lenders that are insured by the government. The government backing reduces the lender’s risk but it comes with regulation, restrictions, and conditions. On the borrower as well as the property.
Not everyone can qualify for an FHA loan but those who do qualify are eligible to put down as little as 3.5% on a traditional purchase and even less with special programs. Like with conventional loans the less money you put down on a loan the higher the rate, fees, and mortgage insurance will be on that loan.
VETERANS ADMINISTRATION (VA) LOANS
VA loans are available to qualify’ing military personnel, veterans, and some spouses. VA loans are made by approved lenders and are insured by the U.S. Department of Veterans Affairs.
The best aspect of a VA loan is that there is no down payment required on a home purchase of up to $424,100 and loans above that amount with down payment.
Keep in mind a VA funding fee of 0 to 3.3% of the loan amount is paid to the VA, although the fee may also be financed and also waived in some situations.
For more information contact Aaron Walker or Jay Rapson at Aaron Lending, LLC.
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