• It’s possible for first-time home buyers to get a conventional mortgage with a down payment as low as 3%; however, the down payment requirement can vary based on your personal situation and the type of loan or property you’re getting:
  • If you’re not a first-time home buyer or making not more than 80% of the median income in your area, the down payment requirement is 5%.
  • If the home you’re buying is not a single-family home (i.e., it has more than one unit), you may need to put down 15%.
  • If you’re buying a second home, you’ll need to put at least 10% down.
  • If you’re getting an adjustable-rate mortgage, the down payment requirement is 5%.
  • If you’re getting a jumbo loan, the down payment requirement ranges from 20% to 40%.
• If you’re refinancing, you’ll need more than 3% equity to refinance. In all cases, you’ll need at least 5% equity. If you’re doing a cash-out refinance, you’ll need to leave at least 20% equity in the home. When refinancing a jumbo loan, you’ll need 10.01% – 25% equity, depending on the loan amount.
• A mortgage calculator can help you figure out how your down payment amount will affect your future monthly payments.
• Conventional Loans Vs. VA Loans:
  • While conventional loans are available to anyone who can meet the requirements, VA loans are only available to veterans, active-duty military members and their surviving spouses. The requirements for VA loans are similar to that of conventional loans. VA loans, however, come with a few extra benefits.
  • First, VA loans don’t require a down payment. Second, VA loans don’t require you to pay mortgage insurance, regardless of how much money you put down.
  • Things To Consider:
    • You can’t use VA loan to buy a second home. The Department OF Veteran Affairs only guarantees a certain dollar amount for each borrower, so you typically can’t have more than one VA loan at a time.
    • You’ll have to pay a funding fee. The funding fee offsets the cost to taxpayers of getting the VA loan. Certain groups (surviving spouses, those on VA disability, and Purple Heart recipients serving in an active-duty capacity) are exempt from paying the funding fee, but most are required to pay it. The funding fee ranges from 1.25% to 3.3% of the loan amount and varies based on how much your down payment is, whether you’re buying a home or refinancing, and which branch you served in.
• Conventional Loans Vs. FHA Loans
  • Conventional loans have stricter credit requirements than FHA loans. FHA loans, which are backed by the Federal Housing Administration, offer the ability to get approved with a credit score as low as 580 and a minimum down payment of 3.5%. While conventional loans offer a slightly smaller down payment (3%), you must have a credit score of at least 620 to qualify.
  • When you’re deciding between a conventional loan and an FHA loan, it’s important to consider the cost of mortgage insurance. If you put less than 10% down on an FHA loan, you’ll have to pay a mortgage insurance premium for the life of your loan – regardless of how much equity you have. On the other hand, you won’t have to pay private mortgage insurance on a conventional loan once you reach 20% equity.
• Conventional Loans VS. USDA Loans
  • While conventional loans are available in all areas of the country, USDA loans can only be used to purchase properties in qualifying rural areas. Those who qualify for a USDA loan may find that it’s a very affordable loan compared to other loan options.
  • There’s no maximum income for a conventional loan, but USDA loans have income limits that vary based on the city and state where you’re buying the home. When evaluating your eligibility for a USDA loan, your lender will consider the incomes of everyone in the household – not just the people on the loan.
  • USDA loans don’t require borrowers to pay private mortgage insurance (PMI), but they do require borrowers to pay a guarantee fee, which is similar to PMI. If you pay it upfront, the fee is 1% of the total loan amount. You also have the option to pay the guarantee fee as part of your monthly payment. The guarantee fee is usually more affordable than PMI.

• Differences Between FHA and Conventional loans
  • There are several key differences between conventional and FHA loans. Consider the following when choosing the right mortgage for your situation:
    • Qualifying for loans
    • Property standards
    • Property types
    • Down payment requirements
    • Private mortgage insurance
    • Loan limits
• Qualifying for an FHA Loan
  • Because FHA loans are backed by a government agency, they’re usually easier to qualify for than conventional loans. The purpose of FHA loans is to make homeownership possible for people who would otherwise be denied loans. You don’t need to be a first-time homebuyer to qualify for an FHA loan. Current homeowners and repeat buyers can also qualify.
  • The requirements necessary to get an FHA loan typically include:
    • A credit score of 500 or higher
    • Good payment history
    • No history of bankruptcy in the last two years
    • No history of foreclosure in the past three years
    • A debt-to-income ratio of less than 43%
    • The home must be your main place of residence
    • Steady income and proof of employment
• Property Standards
  • Property appraisals for FHA loans are stricter than those for conventional loans. Appraisers assess the property for value, soundness of construction and safety. They also make sure it meets FHA Minimum Property Standards. For conventional loans the Home Valuation Code of Conduct regulates the standards, protecting appraisers from realtor and lender influence. The appraised value generally will be greater than, or equal to, the requested loan amount. For either loan type, the appraisal is not a home inspection.

USDA:

• USDA loans are zero-down-payment, low interest rate mortgages. The United States Department of Agriculture guarantees the loans. They help very low to moderate income buyers become homeowners. The home must be in a rural area, which the USDA defines as having a population under 35,000. The area a few suburban areas that meet the USDA criteria.
• Benefits: The USDA loan program can bridge many of the obstacles you may face with a conventional home loan. The three major benefits are:
  • Low rates – USDA loan rates are comparable to conventional loan rates and may at times be lower
  • No down payment. However, most are required to make a $1,000 investment at closing. You can use this $1,000 investment for earnest money or any transaction-related costs.
  • No Private Mortgage Insurance (PMI) – Conventional loan borrowers who are unable to meet the lender’s down payment requirements typically must buy expensive PMI. With a USDA loan, you’re only required to pay a 1% upfront fee. You can choose to pay this fee in cash or roll it into your monthly mortgage payment. Additionally, your monthly mortgage payment will include a small USDA annual fee of 0.35% thereafter.
• Home Qualifications and Requirements
  • Do not have to be a first-time homebuyer
  • Do not have to be employees in the agricultural industry, even though the Department of Agriculture backs the loans
  • Must be a U.S. citizen or an eligible noncitizen (permanent resident)

Home Equity:

• In the simplest terms, your home’s equity is the difference between how much your home is worth and how much you owe on your mortgage.
• Look at this example:
  • Let’s say you bought a $250,000 house with a down payment of 7% (approximately $17,500), resulting in a loan amount of $232,500. By securing a 30-year fixed-rate mortgage at 4.5%, your monthly mortgage payment is $1,178 without taxes and insurance.
  • To calculate your home equity, subtract the amount of the outstanding mortgage loan from the price paid for the property.
  • At the time you buy, your home equity would be $17,500 or the amount of your down payment. For perspective, once you have paid off your mortgage you’ll have 100% equity in the home.
• Building Equity:
  • Paying your mortgage
    • Each month, you will make mortgage payments that will decrease the amount you owe on your loan.
  • Appreciation
    • Over time it is unlikely the value of your property will remain the same as when you originally purchased it. While property values can go up or down, the national average for home appreciation is 3% per year. If you live in a neighborhood where property values are going up overall and you’ve maintained your property well, the amount of your equity will increase as well.
  • Building equity through your monthly principal payments and appreciation is a critical part of homeownership that can help you create financial stability. It’s important to note that some markets appreciate faster than others. It’s also possible for home values to depreciate due to economic conditions, your home not being kept up or a drop in neighborhood home values.