100% FHA! Conventional 1% down mortgage + 2% down payment assistance! What are Low Down Payment, First Time Home Buyer Programs 2018?
First Time Home Buyer Programs 2018 Edition
What are the low down payment mortgage and first time home buyer programs available in 2018?
But what if you’re not a Veteran?
USDA RHS offers 100% 0 down financing to everyone, but it needs to be in a rural development area. (Available outside of major city limits.)
For those in the cities, what are the options? There are two common low down mortgage options:
- Conventional 97% Loan-to-Value (3% down) option
- FHA’s 96.5% LTV (3.5% down) option
There are two new first time home buyer programs 2018 available through MLS Mortgage Group:
- A Conventional, 1% down payment mortgage. The lender contributes the remaining 2% in down payment assistance to reach the 3% minimum down for a conventional loan.
- 100% FHA Financing – no down payment required!
How do you determine which option is best?
Let’s review some of the differences between the two low down payment mortgage options. First, what is FHA? FHA stands for Federal Housing Authority. The Federal Housing Authority is an insurer – it provides Mortgage Insurance (MI) on loans made by FHA-approved lenders. Now let’s continue:
FHA Loan vs. Conventional Loan – Low Down Payment Mortgage
Down Payment (Cash-to-Close) differences with a FHA Loan vs. Conventional Loan:
The 1% down mortgage really breaks the mold when it comes to the first time home buyer programs – it’s the only option where the lender contributes 2% down payment assistance.
The remaining of this article will cover comparing 3.5 down FHA loan versus 3 down Conventional loan. For more information on the 1 down mortgage, see: 1% Down Mortgage.
Calculate your options using our Down Payment Calculator.
A minimum 3 down mortgage versus 3.5% down isn’t a huge difference; but if you’re short on funds when you’re purchasing a home, the extra 3% interested-party-contributions for a FHA loan (including the Seller) really helps toward the closing costs! FHA allows up to 6% contributions versus Conventional’s 3% allowed contributions with the minimum down-payment.
Most noteworthy, if you’re working with a Mortgage Broker that offers you a credit for the interest rate chosen (like MLS Mortgage Group), the credit usually ends up being a little higher with a FHA loan. Larger Credit = Less Cash-to-Close. Even though FHA mortgage rates are lower on average. Be careful not to equate lower interest rates with savings – when you include the upfront MI premium, it effectively raises the rate. For a quick comparison, check out the Mortgage APR to see the actualized cost.
Mortgage Insurance differences with a FHA Loan vs. Conventional Loan:
FHA charges mortgage insurance upfront and monthly. The upfront premium is usually added on to your base loan amount to lessen the amount to bring to closing. If you’re putting less than 10% down on an FHA loan, you’ll be paying mortgage insurance until the loan is paid off. If you put more than 10% down, you have the option to cancel the insurance after 11 years.
On the other hand, with a Conventional loan, you have the opportunity to remove the mortgage insurance after the home appreciates. It will cancel automatically if you pay the principal down to 78% LTV or if values increase, you may have the option to get an appraisal to prove the home’s value to remove the mortgage insurance earlier.
We did a comparison between the two minimum low down payment mortgage loans and the differences were astounding. In the scenario of a $250k loan with a 740 credit score, the difference ended up being over $42k more over 30 years if you went with the FHA loan compared to the Conventional loan. If you think you’ll be staying in the home so it has a chance to appreciate or you may be making additional payments to your principal balance, it’s definitely worth checking out Conventional financing. Conventional mortgages also have the option of no MI via lender-paid MI.
Repair differences with a FHA Loan vs. Conventional Loan:
Both a FHA loan and Conventional loan offer Home Improvement or Renovation loans. The main difference between those two low down payment mortgage options is the FHA loan allows their standard 96.5% loan-to-value versus 95% LTV for a Conventional loan.
Credit differences with a FHA Loan vs. Conventional Loan:
One of the biggest differences between a FHA loan and Conventional loan are the credit requirements. Currently, we have access to FHA financing with credit scores down to 500. That does require 10% down; if you want the minimum 3.5% down, your credit will need to be at least 580. There are Conventional loan down payment mortgage options for as low as 620 with 3% down. The biggest differences at the lower scores are the costs involved between higher interest rates and mortgage insurance.
Which is best – a FHA loan or a Conventional Loan?
If you have good credit, down payment, and plan to keep your home for an extended time, then a Conventional loan may be a better fit for you. If your credit has some imperfections, a FHA loan may be the better low down mortgage option.
With the myriad of difference and possibilities, the best way to truly figure out the best option for you is to consult a Mortgage Loan Originator. An experienced professional will review your specific situation and supporting documentation to present low down mortgage options to you. Then you will be able to review your personalized options and make an informed decision.
View the Low Down – FHA Loan vs Conventional Loan PDF: Low Down Payment Mortgage FHA Loan vs Conventional Loan
We are based out of Minneapolis, MN and are happy to assist anyone planning on purchasing a home in Minnesota. Feel free to contact us for an obligation-free consultation to explore personalized low down payment mortgage options.
First Time Home Buyer Programs 2018