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Friday 07/28/2017 Mortgage Rates

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Little to No Down Payment Mortgages

Low-income homeowners and families in situations where they can't afford the regular fees of standard loans can find alternatives with lenders that require little to no down payments. You will find the essential information about such lenders and the perks of acquiring one of the mortgages mentioned.

The types of mortgages which require little to no down payments can be found with the FHA, the VA, the USDA, and the Navy Federal Credit Union.

Federal Housing Administration

With a minimum down payment of 3.5%, the FHA just happens to be the contemptible option for homeowners with a poor credit history. This is largely due to the fact that they require an upfront premium of 1.75% of the mortgage amount. In the case of a 30-year loan with the minimum down payment, a premium of 0.85% is required on an annual basis. For example, if your loan was $150,000, you will be obligated to pay an annual premium of $1,275 (or 0.85%), or $106 a month.

Learn more about the FHA loan here.

The Pros of FHA:

  • They require a small down payment.
  • They require very lenient credit requirements.
  • The down payment can be a gift or a grant.

The Cons of FHA:

  • The smaller your down payment is, the bigger the mortgage insurance premiums to which you're obligated will be.
  • You cannot cancel the insurance premium even if your mortgage balance (LTV) reaches 80% and under.

Veterans Affairs

The VA program is strictly limited to service members of the regulator military, reserves, or National Guard. For details on who's eligible for the VA loan, click here.

First-time mortgagors of the VA loan are obligated to make a down payment of 2.15% if they are a service member of the regulator military, and 2.4% if they're members of the reserves of National Guard. Any subsequent VA loan won't involve a down payment.

A funding fee that falls between 1.25% and 3.3% applies in the case of a construction or purchase loan. It can, however, be rolled into the loan balance.

The most profitable thing about a VA loan is that there are no mortgage insurance premiums (MIPs) involved, making it the more affordable option for our military men and women and their families.

The Pros of VA:

  • The have very lenient eligibility requirements.
  • The first VA loan involves a very small down payment of 2.15% - 2.4%.
  • No down payments accompany subsequent VA loans.
  • No mortgage insurance premiums applicable.
  • The funding fee can be financed into the loan amount.
  • Hundreds of dollars worth of an allowance that otherwise would have been wasted on insurance payments.

The Cons of VA:

  • First-time VA mortgagors need to make a down payment even though they have more to lose.
  • The Funding fee will raise the monthly rates if financed into the loan balance.

The Navy Federal Credit Union

The Navy Federal Credit Union is the largest credit union in the United States in terms of the volume of membership. They offer 100% in financing, 1.75% in funding fees, all forms of mortgage types to suit your needs - from VA loans to conventional fixed-rate - and extremely lenient loan-to-value requirements.

Four of their many programs: the VA loan, VA Streamline, Military Choice, and Conventional Fixed Rate don't involve mortgage insurance payments, saving homeowners many hundreds of dollars a month. Moreover, these programs, in particular, require a loan-to-value of 95% and up.

The Pros of NFCU:

  • They offer complete financing.
  • Loan-to-value ratios of up to 100% are accepted.
  • They have different loan programs for different financial situations for you to choose from.
  • You can choose between fixed and adjustable rates.
  • They have very lenient eligibility requirements.
  • They offer higher loan yields than other lenders with similar lenient conditions.

The Cons of NFCU:

  • Their loans are only eligible for mortgagors that served as a member of the U.S. armed forces, the reserve, or the Department of Defense.  

The U.S. Department of Agriculture

What distinguishes the USDA from other lenders is that only first-timers can qualify for a loan, with a few rare exceptions.

The upfront funding fee required only makes up 2% of the loan amount, but there are mortgage insurance payments to worry about. The insurance rates are 2.75% of the loan at closing, while the annual rate will cost you 0.50%.

Another condition for eligibility is an annual guarantee fee that needs to be met in a timely manner, and it accounts for 0.5% of the loan.

The Pros of USDA:

  • They give complete financing.
  • Gifts and grants are recognized by the USDA.

The Cons of USDA:

  • Insurance premiums are required.
  • The monthly rates will increase if the insurance payment is rolled into the mortgage.

Private Mortgage Insurance

Homeowners who don't make a 20% down payment - in other words, if they don't have a loan-to-value ratio of 80% - will have to compensate with mortgage insurance premiums. If the MIP is not paid in full at the time of closing the loan, it will then be financed into the mortgage. 

Your credit score needs to be 660 and up to qualify for PMI mortgages, and 720 and up to qualify for low-interest PMI mortgages.

Private mortgage insurance is far easier to deal with than the FHA's mortgage insurance premiums due to the fact that you can cancel your PMI should your loan amount decreases to 80% and under of your home's value.

 

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