Posts Tagged ‘minimum down payment’

Conventional and FHA loans revisited

January 8, 2010

In 2008, I released a series of posts comparing the pros and cons of conventional and FHA loans.  If you haven’t noticed, a lot has changed in the last couple of years.

On that note, I thought it wise to make note of new guidelines and highlight some changes to existing guidelines for both conventional and FHA loans. For reference, I will also provide links back to the original posts from April to June 2008.

Minimum credit score requirements (click here for the original post):

  • Lenders now require a 620+ credit score for FHA loans (a 660+ credit score for some programs). Credit scores between 620-660 may see a slightly increased interest rate.  – this is a change from no minimum credit score requirements
  • Conventional loans also require a minimum credit score of 620+, but interest rates for scores under 680 see a noticeably higher interest rate. – this is a change from possible approval below 620 and higher rate adjustments occurred below 620.

Credit history requirements (new requirement):

  • Brand new – FHA loans now require borrowers to have at least three active OR recently closed trade lines (accounts) in their credit history.  See this recent post for more details.
  • Conventional loans do not have this requirement.

Minimum down payment requirements (click here for the original post):

  • FHA loans require a minimum down payment of 3.5% regardless of the credit score. – change from 3%
  • FHA down payment assistance programs are no longer allowed.
  • Conventional loans require a minimum down payment of 5% and a 680+ credit score in order to obtain Private Mortgage Insurance.  – no change in the amount needed down, but the minimum credit score requirement is new
  • If a borrower’s credit score is below 680, then a 20% down payment will be required on conventional loans.

Private Mortgage Insurance (click here and here for original posts):

  • FHA loans still require an up front Mortgage Insurance Premium fee of 1.75% of the loan amount. The fee is rolled into the loan amount. – change from 1.5% up front fee
  • FHA monthly mortgage insurance payments are still lower than conventional loans.
  • Conventional loans do not have an up front fee, which is why their monthly premiums are higher than FHA loans.

The last couple of years haven’t changed the overall differences between FHA and conventional loans.  They have however tightened up the qualifying guidelines making planning ahead crucial. If you are looking to buy (or refinance) a home in the next 6-12 months, give me a call to help ensure you everything is in order when you make an offer on a home.

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Out with the old…

December 31, 2009

… and in with new FHA guidelines. Given the time of year, it seems almost appropriate.  Regarding the new change…

FHA loans now require borrowers to not only have a minimum qualifying credit score to be approved for a loan, borrowers also need to have at least three trade lines (accounts) in their credit history.  The three trade lines must:

  • Trade lines can be a credit card(s), student loan, car loan, mortgage
  • Have at least 12 months of history (current or closed account)
  • If an account is closed, it cannot be closed more than 24 months ago or it will not be counted toward the required three trade lines

Because of this new change, even if a borrower has the minimum down payment (3.5%) and a qualifying credit score (620+), they would still not qualify if the new trade line requirement is not met.

Why would FHA require this? There has not been an official statement, but they could be thinking “if there are only one or two trade lines, is the credit score an accurate score based on the limited history.” Regardless of the reason, this is just one more item to keep in mind when looking to buy a home.

I’ve said this before and I will say it again, planning ahead is key.  Knowing where you stand, how much you can afford, and when it the best time to move forward is essential in this ever changing market.

Little or no money down? No problem!

August 26, 2009

Gone (long gone in fact) are the days of easy 100% financing. Conventional loan programs using 80/20 combo loans or 100% financing with Private Mortgage Insurance are a thing of the past. In fact, the minimum down payment for a conventional loan in Georgia is now 10%.

Think about that figure for a minute. On a $250,000 loan, the minimum down payment is $25,000. While conventional loans do allow gift funds, many buyers do not have that much money available for a down payment (especially first time home buyers).

So… conventional loans require 10% down. That is good to know, but what about the borrowers who do not have that much for a down payment? I’m glad you asked! There are several programs available that require little or no down in order to buy a home.

  • FHA loans: FHA loans require only a 3.5% down payment along with lighter credit and cash reserve requirements.
  • FHA 203K Streamline: This program also requires a 3.5% down payment, but there are provisions allowing borrowers to finance an additional $5,000-$35,000 for non-structural repairs/updates to a home (new roof, carpet, paint, siding, remodel kitchen/bath, etc.)
  • $100 HUD Homes: Many foreclosed homes owned by HUD are available to buy with only a $100 down payment using an FHA loan. The offer must be at the property’s asking price, and if accepted, the down payment would only be $100.00!
  • VA loans: VA loans allow 100% financing. Traditionally, these loans are available to U.S. Veterans and their spouses. However, the VA Vendee program allows borrowers to purchase VA foreclosed homes using a VA loan regardless of their U.S. Veteran status.
  • USDA/Rural Development loans: USDA loans also allow up to 100% financing. Property eligibility is based its location. If a property lies outside of a metro-area, there is a chance it would be eligible. To know for sure, you can go here to check.

Even though the current lending environment is definitely not what it used to be, options remain for borrowers with little or no money down. While some of the loan programs depend on the property itself, a 3.5% down payment can get borrowers into most homes on the market. Feel free to contact me for more information on any of these loan programs.

It’s nice to know that even now, you don’t need to break the bank in order to own a home!

It’s nice to know that even now, you don’t need to break the bank in order to own a home!

Clay Jeffreys is a Mortgage Consultant with Dunwoody Mortgage Services, Inc. and writer for “Blog Pertaining to the Acquisition of a Mortgage to Purchase a Domicile.”  Dunwoody Mortgage Services seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about Dunwoody Mortgage and available programs, please visit www.dunwoodymortgage.net.

Buy a home with a $100 down payment

May 11, 2009

Yes, you read that correctly.  Regardless of what you may hear in the news (must have a 20% down payment), there are homes available to buy with only a $100 down payment.  All a potential buyer needs is $100 for the down payment, 600+ credit score, the home must be their primary residence, and well, a pulse!

For more details on the program, you can go to HUD’s website here.  For a quick look at some of the highlights:

– The home must be owned by HUD and requires an FHA loan to purchase the property.

– Buyer must give a full price offer on the home.

– Provisions are made to offset some (if not all) of the closing costs.

The pros to this program are obvious – a home buyer only needs $100 for a down payment and can use an FHA loan (with flexible credit qualifying) to buy the home.

The biggest downside to this program is location, location, location.  The only properties eligible for the program must be owned by HUD.  This makes targeting a home with a certain number of beds/baths, a specific neighborhood, or school district a little more difficult.  It just depends on what is available.

Interested?  If so, you need to find see the homes available. To do that, try this link.  If you are in Georgia, go here.

Don’t believe everything you see on TV or read on the internet.  You don’t need a 20% down payment to qualify for a mortgage.  Homes can be purchased for as little as $100 down through this special FHA program.  Generally, FHA loans only require a 3.5% down payment, and conventional loans only need 5% down.  That is a far cry from the “20% needed” you may hear on the news!

Clay Jeffreys is a Mortgage Consultant with Dunwoody Mortgage Services, Inc. and writer for “Blog Pertaining to the Acquisition of a Mortgage to Purchase a Domicile.”  Dunwoody Mortgage Services seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about Dunwoody Mortgage and available programs, please visit www.dunwoodymortgage.net.