FHA, VA mortgages offer the lowest rates for these borrowers
But if private mortgage insurance (PMI) is inevitable for borrowers with a low down payment, the question is whether paying these fees for an ultra-low mortgage rate from a government-backed program might be worth it in the long run.
FHA loans charge 1.75 percent of the loan amount up front plus a variable annual fee for the life of the loan. VA loans have an initial VA financing fee of 1.25% to 3.3% of the loan amount. Conventional loans charge PMI less than 3% down payment until you reach 20% equity. PMI payments can cost between 0.55% and 2.25% of the original loan amount each year, according to data from Ginnie Mae and the Urban Institute.
Overall, the conventional low down payment loans from Fannie Mae and Freddie Mac might be the best option for many homebuyers, and perhaps the cheapest.
“FHA was more prevalent between 2008 and 2011 for Americans with FICO scores over 700 because it was the only low down payment loan in America at the time,” says Logan Mohtashami, senior loan officer for AMC Lending Group. “Now the GSEs (government sponsored companies) have provided their down payment loans with better mortgage insurance payments.”
But don’t rule out FHA or VA loans as an option. It is important to do the math for your particular situation – you can use a mortgage calculator help.
“For any American looking at loan types, you need to sit down with your loan officer and go through all of the different variables of each loan and choose the right one for yourself,” says Mohtashami.
Credit score and mortgage rates
Keep in mind that while your credit score has a big influence on the mortgage rate you will get, this is not the only factor at play.
“You don’t always need a perfect credit score to get the best rate,” says Kevin Parker, vice president of Field Mortgage at Navy Federal. “Some lenders are relationship-based in their underwriting, so if you’ve paid your bills on time and have a good history with them, they may be able to match you with the lowest rate, even if your credit is not perfect. . “
Other factors that influence your credit score include your down payment, type of loan, loan term, loan amount, closing costs, type of interest rate, and location of the loan. property.
Consider all your financing options
“Borrowers have more options than ever before to help them make the most of their home buying budget,” Parker says.
Not all lenders need private mortgage insurance for low down payment types of loans. Federal Navy Credit Union, for example, does not require a down payment or private mortgage insurance on their VA loan.
Of course, you need to be able to qualify for a VA loan in the first place. But the point is that lenders differ in their requirements, which makes it important to explore all of your choices.
“Start by having a conversation with a lender you can trust,” Parker says.
He suggests asking them if they will be providing the service for the life of the loan and how they structure their fees, as sometimes a lower interest rate will come with a higher than average fee.
“At the end of the day, it pays to do your homework, find a lender that offers mortgages that don’t require a PMI, and make sure they’re ready to be your partner on this journey that is. home ownership, ”says Parker.
Image presented by Joe Raedle / Getty Images.