Current mortgage rates have made another move lower.
Based on mortgage-backed securities (MBS) and daily market pricing, the conventional 30-year fixed rate mortgage rate is now hovering under 3.5% nationwide for buyers paying points on their home loans.
Meanwhile, rates for FHA loans and VA are tracking even lower.
According to Ellie Mae, FHA mortgage rates"] currently average 14 basis points (0.14%) lower than a comparable conventional loan; and VA mortgage rates currently average 28 basis points (0.28%) less.
Low mortgage rates can be enticing to today's renters and home buyers -- especially with banks making it simpler to get approved for today's mortgages. However, not every buyer thinks they have enough the means to make a downpayment.
Don't have 20% for a home downpayment? No problem!
As the¬†housing market improves, mortgage lenders have made a multitude of low- and no-downpayment mortgage programs available to U.S. buyers. The programs aren't just for first-time buyers, either. Repeat home buyers are getting access to the same zero-down products as everyone else.
So, what options do¬†first-time and move-up buyers have today? Plenty.
To buy a home, you don't need to make a 20 percent downpayment. Unfortunately, though, the "20% Downpayment Myth" is widely circulated; passed down from parents to children; and college professors to students.
And there's actually a good reason why people say you need 20% down to buy a home -- without such a downpayment, buyers are typically¬†subject to mortgage insurance payments which can add to monthly housing costs.
To avoid mortgage insurance payments, then, buyers have been conditioned to put 20% down, even though it's not required or necessary.
Remember: The "20% down" myth is unique to conventional loans. FHA loans, VA loans, USDA loans and jumbo loans charge mortgage insurance differently from Fannie Mae and Freddie Mac.
On a conventional mortgage, in some circumstances, mortgage insurance can be removed in as few as¬†12 months from closing. This is not a long time. However, for other loan types, mortgage insurance can last as long as 30 years.
More important than making a 20% downpayment, then, is choosing the most appropriate loan for your downpayment needs.
There are three government-backed mortgage programs which allow for downpayments of less than 5 percent; and each is a viable option for today's U.S. buyers.
The Federal Housing Administration (FHA) is part of the¬†government's Housing and Urban Development (HUD) agency.
HUD‚Äôs mission is to "create ¬†strong, sustainable, inclusive communities and quality affordable homes for all"; a role it's been fulfilling¬†for decades. Via the FHA, HUD makes low-downpayment mortgages available to U.S. buyers in all 50 states, and the District of Columbia.
The FHA doesn't make mortgages. Rather, it insures them.
The agency publishes a series of standards which all of its insured loans must meet, and lenders underwrite FHA-backed mortgages to these guidelines. Loans which meet the FHA's criteria are eligible for insurance, and can be approved.
FHA mortgage insurance premiums (MIP) are paid by the borrower in two phases. The first phase is paid at closing and is known as the FHA upfront mortgage insurance premium. The second phase is paid monthly, along with the monthly mortgage payment.
FHA loans do more than just offer low downpayments -- they also provide for flexible underwriting standards so that "second chance" buyers can can get approved without hassle or issue. One such FHA program is the FHA Back to Work loan, which lets a buyer apply for a loan just 12 months after a bankruptcy, short sale, or foreclosure.
Via the Department of Veterans Affairs, veterans¬†of the U.S. Armed Services can¬†access loan programs not available to the typical U.S. consumer.¬†One such program is the no-money-down VA loan.
VA loans offer 100% financing and underwriting standards are sensitive to the needs of a military family. For example, military families relocate frequently; receive housing allowances; earn hazard pay; and, sometimes, are paid non-traditionally.
With conventional financing, military families are sometimes challenged to "prove income". Via the VA loan, standards are loose and approvals are simple. Plus, because VA loans are guaranteed against loss by the government, VA mortgage rates are typically lower than for a comparable conventional mortgage.
Furthermore,¬†the VA loan requires no mortgage insurance ever, regardless of your downpayment. Whether you finance 100% of your home or make a fifty-percent downpayment, the VA will never charge to insure your loan.
Note, though, that the VA charges¬†a funding fee with each VA loan which, for some veterans, can be waived.
Fannie Mae and Freddie Mac reinstated the popular Conventional 97 program in late-2014. The program is available to first-time buyers and repeat buyers; and can even be used to refinance.
It's often the best choice for home buyers with at least above-average credit scores; and who can verify income and employment.¬†The 3-percent downpayment program also allows for a gift of downpayment.
The¬†Conventional 97 program is limited to loans sizes of $424,100¬†or less, which means that jumbo-conforming loans between $424,100 and¬†$636,150 are not allowed -- even in high-cost areas such as Orange County, California and Seattle, Washington; and the program is available for single-family homes only.
The¬†Conventional 97 program is available from most mortgage lenders.
Another low downpayment option for today's home buyers is the USDA Rural Housing Loan, also known as the Section 502 loan.
The USDA loan is a bit of a misnomer. It's not just available in "rural" areas; it's available in suburban neighborhoods as well.
Like the VA loan, USDA mortgages do not require a downpayment. Home buyers can finance up to 100% of a home's purchase price and, in some instances, can finance in the cost of energy-efficiency improvements to a property.
The USDA loan program is¬†backed by the U.S. Department of Agriculture and the program is meant to help households of modest means. As such, the program enforces maximum income limits for its borrowers based on the typical income for the area.
For eligible borrowers, mortgage rates for the USDA loan are often the lowest of all government-backed programs. Program mortgage insurance rates are often the lowest, too. If you're considering a home in a non-urban area, be sure to check USDA mortgage rates.
USDA loans can represent the lowest long-term cost for a borrower making a downpayment of less than 20 percent.
It's a terrific time to be a home buyer. Home values are rising in many U.S. markets; mortgage rates are near two-year-ago¬†levels; and, there is an abundance of low- and no downpayment mortgages available for today's buyers.
Compare today's mortgage rates and see for what you'll qualify. Complimentary rate quotes are available at no cost, with no obligation to proceed, and with no social security number required to get started.
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
Marie M. Real Estate Agent
I have been a Realtor for more than 30 years and enjoy The Mortgage Reports. It's terrific to learn something new almost every day.
Ricardo P. Project Manager
The Mortgage Reports is awesome. The site is extremely helpful, keeps you up-to-date, and puts you ahead of the game. Add The Mortgage Reports to your reading list!
Elizabeth C. Librarian
Thanks to The Mortgage Reports, I have a new, very low rate for my home. I owe you so much.
2017 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)