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Four Types of Mortgages That Might Accept Smaller Down Payments
If you're saving to buy a house, you might already know that most lenders want you to have a down payment of 20% or more to qualify for a conventional mortgage. In some areas, and for first-time buyers, this can be tough to do.
Don’t despair! There are loan options with lower down payments, and your down payment may not have to be 100% from your savings.
You should be aware that with a smaller down payment, you’ll likely be required to pay for mortgage insurance, and your loan application may be subject to greater scrutiny.
Here are several mortgage types that allow a smaller down payments:
· FHA: The Federal Housing Administration offers 3.5% down payment mortgages through participating lenders. FHA loans are also easier to qualify for and have slightly lower rates than conventional mortgages.
· GSE-backed loans: Fannie Mae and Freddie Mac are both currently insuring 97% loan-to-value loans. That enables lenders to offer 3% down payment mortgages to qualified buyers.
· USDA: Home buyers in rural and suburban areas may be able to qualify for home loans offered by the U.S. Department of Agriculture. USDA loans offer low rates and 100% financing.
· VA: Eligible veterans, as well as active duty service members and their families, can qualify for Veterans Administration loans. A VA mortgage requires no down payment or mortgage insurance.
There are all kinds of online mortgage calculators that can help you determine what your down payment amount will be based on the type of loan, the price of your house, your location, and credit rating. These will give you a good idea of what to expect, but they’re estimates, only. Your lender will have the facts and actual amounts.
Don't assume you can shop for a mortgage lender today and another one next week when you’re looking for a loan. The mortgage market is volitile and changes quickly. You really need to sit down, and contact a few lenders at the same time. If you do it now, odds are good you can lock in your rate for a while.
Once you've compared a few rates you should request a pre-qualification letter. Getting pre-qualified for a mortgage loan requires that you select a mortgage lender to work with and obtain your loan. Essentially, mortgage pre-qualification is a promise from the lender that you’re qualified to borrow up to a certain amount of money at a specific interest rate, subject to a property appraisal and other documentation.
In today’s competitive housing market, it is not uncommon for a seller to receive multiple offers on their home. Having a pre-qualification letter in-hand could be the difference in having your offer accepted. This proves to the seller that you are serious and gives you an edge over other buyers.
If you have any questions about the mortgage process, give us a call. We can put you in touch with a mortgage specialist with the latest information on rates, the process, and specialized products that meet your needs.