A Look at Low and No Down Payment Options

Of all the options that you have for financing or refinancing a home, you will more than likely be taking out a conventional, FHA, or VA loan. While the Veteran’s Administration loan is the only one of the three that offers a true zero down payment option, each of the three options has its pluses and minuses.

VA loans: The challenge of VA loans is qualification. Only buyers with military backgrounds are eligible.

Conventional loans: These loans follow the underwriting guidelines of Fannie Mae and/or Freddie Mac. A down payment of just 3% is available with conventional loans, but the credit score requirements are much higher than those of either of the other two programs. This disqualifies many buyers.

FHA loans: These loans have a minimum down payment of 3.5%. FHA is the option many buyers take when they want a low down payment but their credit is less than stellar. These loans are fairly easy to qualify for; however, they can prove costly over time.

This cost lies in the mortgage insurance. Unless you are putting down at least 10% (which is contrary to the idea of a low down payment), the mortgage insurance will remain in place until the loan is paid off through a refinance, the sale of the property, or the end of the term of the loan. This extra fee can add up over the life of the mortgage.

Which loan type is best for your situation? Get in touch with your questions so we can discuss low and no down payment mortgage options that may be available for you.

Yes, There Are Alternatives to a 30-Year Mortgage

Mortgage rates have risen over the past year, and they could continue to do so in 2019. With this in mind, buyers planning to purchase or refinance a home may want to consider 15-year and 10-year mortgage options.

Why? There are a couple of reasons.

First, interest rates on shorter-term loans are normally lower than they are on loans with 30-year terms.

The second reason is that, over time, you could save tens of thousands of dollars in interest expense with a 10-year or 15-year loan.

Of course, since your payments are spread over a shorter period of time, each payment will be higher.

To compare the two, let’s use a $125,000 mortgage as an example. This loan, at 4.5% for 30 years, will carry a payment of $633.36 before taxes and insurance. The same loan amount with a 15-year term and a rate of 4.25% will have a payment of $940.35. The 10-year option will carry a payment of $1,280.47.

Yes, there is a significant difference in the amount of the payment, but, over time, you’ll make $228,009.60 in payments on the 30-year loan, $103,009 of which is interest. With the 15-year option, you’ll spend $169,263 in payments, of which $44,263 is interest.

The difference in interest expense between the two is $58,746.

If you’re unable to swing the higher payment but want to reduce your interest expense over time, you could add additional money to your monthly payment.

In fact, on a 30-year mortgage, if you add just 1/12 of your principal and interest to your payment each month, you’ll reduce your total loan term by close to four years. In our example above, this would require paying an additional $52.77 with the $633.36 monthly payment.

Interested in paying off your house faster? To learn how you can save on your mortgage, contact me to review your payment options. I’m here to help!