FHA Loan Down Payments
One of the biggest stumbling blocks home buyers face is the inevitable down payment. Depending on the home and the lender, this can take a large chunk out of a household’s budgetary savings. FHA loans are designed to aid buyers with often lower down payments than conventional lenders. This can make loan terms much more favorable and with a comparable interest rate, and similar closing costs.
FHA mortgage loan borrowers can often see down payments as low as 3.5% depending on their credit score. Consider that conventional loans usually require a 20% down payment and you can see that this is quite a savings.
Let’s put it into perspective a bit. If a home is $250,000 and the down payment is 3.5%, that makes the down $8,750 as opposed to the 20% down of $50,000.
This savings is a significant difference. However, if you consider a higher-cost home, let’s say $500,000, a 3.5% down payment would come out to $17,500 as opposed to the 20% down of $100,000. This comparison shows the monumental difference between FHA and conventional loans concerning down payments.
It should be noted that the minimum 3.5% down payment through FHA loans is possible for borrowers who have personal credit scores of 580 or higher.
If your personal credit score falls in the lower range, between 500 and 579, lower down payments are possible; however, they will be in the minimum range of 10%.
While this may seem like a drastic change, this is still a significant saving from traditional mortgages of 20%.
This makes a minimum down payment much smaller as long as your loan is within certain loan limits, your loan to value ration and your loan amount are within the lines that the federal housing administration has set.
FHA loans do have their downside in the form of mortgage insurance premiums. Borrowers are required to pay these premiums monthly for the life of the loan.
Other Loans with Low Down Payments
While looking for mortgage loans, remember that many banks offer FHA mortgage loans, but they may also provide other low-down payments loans. With mortgages including Fannie Mae or Freddie Mac, you may find another option that could offer a lower down payment. These loans will still require mortgage insurance and have different qualification guidelines. Make sure that you discuss all of your options with your lending agent.
More: FHA Loan 101