Cost Comparison: Low Down Payment Mortgages
Posted Mon, 2010-02-22 18:55 by Emily Caryl
Several years ago, there were many options available to consumers who wanted to purchase a home with little or no down payment. While fewer choices remain today, there are still several mortgage programs that allow Borrowers to own a home with little or no up-front cost. FHA, VA, USDA and Conventional financing programs all allow for low down payments (or no down payment at all).
Over the next few days, I will discuss the costs associated with obtaining a low down payment mortgage including:
- down payment requirements
- mortgage insurance
- interest rates
- allowable seller contributions
If you'd like to skip ahead, you can read the entire post here.
Option 1: USDA Guaranteed Rural Housing
For those who qualify, The USDA Guaranteed Rural Housing program is usually the least expensive mortgage available. The USDA GRH is intended to provide home ownership opportunities to middle-income borrowers in rural areas.
Borrowers must purchase a home in a rural area and have income that does not exceed 115% of the median income for that area. All of Jefferson and Clallam counties are considered rural. In both counties, the maximum income allowed for a USDA GRH loan is $73,600 (for a 1-4 person family). Certain deductions can be made for dependent and child care expenses, so be sure to check with your mortgage loan officer if you're considering a USDA GRH loan.
The USDA also has an Income and Property Eligibility web site. Be sure to select options for the Guaranteed Rural Housing Loan Program if using this site.
The USDA GRH mortgage does not require a down payment. Interest rates are competitive. And there is a 2% Guarantee Fee due to USDA at the time of loan closing. The fee may be financed into the loan. There is no monthly mortgage insurance requirement for USDA GRH loans.
Closing costs may also be financed into the loan (as long as the loan amount doesn't exceed the appraised value of the property by more than 2%). Or the Borrower may choose to pay closing costs with his/her own funds or with eligible gift funds. He/she may also negotiate for the seller to pay all or part of the closing costs (including the Guarantee Fee), usually up to 6% of the purchase price.
While Borrowers don't have to be first time homebuyers to qualify for the USDA GRH, they cannot currently own adequate housing within a reasonable commuting distance.
*Crunching The Numbers: All calculations presume a fixed rate mortgage with a 30 year term, purchase transaction, owner occupied, 700 credit score, single family detached residence, located in Jefferson County, Washington. USDA GRH example includes interest rate of 4.75%, APR of 5.088%, and guarantee fee of 2% financed into the loan. VA example includes interest rate of 4.75%, APR of 5.049%, and funding fee of 2.15% financed into the loan (the fee for regular military; first time use). FHA example includes interest rate of 4.75%, APR of 5.330%, up-front MIP of 2.25% financed into the loan and monthly MI of .55%. Conventional example includes interest rate of 5.125%, APR of 5.693%, and monthly MI of .98%. All examples include estimate of $600/year for hazard insurance and $2,400/year for property taxes. Cost comparison includes monthly MI payments for 60 months. Loan balance assumes all payments were made on time and no additional amounts were paid towards principal. Calculations do not include closing costs or pre-paids. All interest rates quoted were available on February 11, 2010.
Post new comment