Low Down Payment Home Mortgages - Is One Right for You?
With so many other costs associated with a buying a home, it’s no surprise that a lot of people are looking to have low down payment on their home loan.
A common belief is that there needs to be down payment of 20% at the minimum. This was the standard for a long time; however, now, more flexible options are available.
As a matter of fact, there are loan programs with a down payment of 3.5% of the property’s price. A low down payment loan is generally a loan that has a down payment of less than 20%.
However, low down payment loans come with certain conditions. For example a lot of lenders normally require that the loan be insured in some manner. This type of insurance is known as mortgage insurance.
Mortgage Insurance – Mortgage insurance provides financial protection to the party doing the lending in event that the borrower defaults on the mortgage. Lenders normally ask home buyers to have mortgage insurance on any loan that has a down payment of 20% or less. So the borrower almost always has to have some type of mortgage insurance to get a low down payment loan. The borrower normally has to bear the cost of the insurance. There are two types of mortgage insurance – government and private. Here are some details of both of these options.
Government Mortgage Insurance – This type of mortgage is normally insured by one of the following federal authorities: the Federal Housing Administration (FHA); the Rural Housing Service (RHS) of the Department f Agriculture; or the Department of Veterans Affairs (VA). Each agency has its own standards for insuring loans. For example, RHS normally provides loans to people living in the rural areas, and VA loans are reserved for military veterans and their spouses.
To get insured by the FHA, there should be a down payment of at least 3%. They also consider your geographic area when deciding the amount of the loan. This is how you can obtain government mortgage insurance for purchasing a house with a low down payment. By getting one of the above-mentioned federal organizations to back your loan, you can have a down payment of less than 20%.
Private Mortgage Insurance – Private mortgage insurance, or PMI, can also enable you to get a home loan with a low down payment. This type of insurance is on offer to a much greater number of people compared to the government mortgage insurances mentioned above. For instance, the availability is not limited to rural residents or the military.
PMI is on offer for a lot of different low down payment mortgages. There is also no pre-set limit on the amount. These days, you can definitely find a home loan with a low down payment – payment of less than 20%. With this type of loan, you will need to have mortgage insurance, provided either by the government or a private insurer.