Buying your first home can be a challenge. There’s a down payment to save for, credit score minimums to meet and a monthly payment to fit in your budget. However, with the right mortgage program, you may be able to purchase your first home with less cash, easier qualifying requirements or lower monthly expenses than you might expect. Here’s a breakdown of some of the most popular home financing options for those who are ready to become homeowners.
- FHA Loans
Backed by the Federal Housing Administration, FHA loans are one of the most widely used mortgage programs by first-time homebuyers. They offer flexible credit requirements and no income limits or first-time homebuyer requirement, making them one of the most accessible home financing options available. FHA loans have a down payment minimum of 3.5%, meaning you could buy a $250,000 home for just $8,750 down. One tradeoff with this program is that it requires monthly mortgage insurance premium (MIP) payments that last either 11 years or until the loan is paid off or refinanced (depending on the terms of the loan).
- VA Loans
VA loans are guaranteed by the U.S. Department of Veterans Affairs and provide home financing benefits to qualified military-connected individuals. Eligible borrowers include active-duty military, honorably discharged military, National Guard, Reserves and select surviving spouses. If you qualify for this program, you can purchase a home with no down payment, no mortgage insurance expenses and – when you work with Draper and Kramer Mortgage Corp. – no lender fees! VA loans require a VA funding fee, but this can often be financed into the loan rather than paid upfront, and some borrowers may qualify for an exemption to this fee.
- USDA Loans
If you’re planning to buy a rural home, a USDA loan may be right for you. With this special program backed by the U.S. Department of Agriculture, you can purchase a home in an eligible rural location with no down payment. There is an upfront loan guarantee fee of 1% of the loan amount (which can be financed into the loan rather than paid upfront) and an annual fee of 0.35% of the loan amount (paid in monthly installments). Also, your household income cannot exceed 115% of the median household income for the region.
- HomeReady, Home Possible, HomeOne and Standard 97% LTV
Mortgage agencies Fannie Mae and Freddie Mac offer four similar programs that all offer 3% down payment minimums. HomeReady and Home Possible have no first-time homebuyer requirement, but they have an income limit of 80% of the area median income where the home is located. HomeOne and Standard 97% LTV do have a first-time homebuyer requirement, but they do not have an income limit. All four programs require private mortgage insurance (PMI) when financing a home with a low down payment (HomeReady and Home Possible offer reduced PMI coverage depending on the loan-to-value ratio), however, the PMI and its associated cost can be dropped later when the proper conditions are met.
- Housing Finance Agency Programs
Many states and some regions have housing finance agencies that offer unique mortgage programs for their residents. Some of these programs are alternatives to the ones listed above, while others offer benefits that can be paired with another program. HFA programs vary by agency, and many have first-time homebuyer requirements, income limits or both.
The most popular HFA offering is down payment assistance (DPA). With DPA, you receive funds to help cover some or all of your down payment and closing costs. For example, if you qualify for a 3.5% down payment FHA loan and 4% in down payment assistance, you wouldn’t need any cash for a down payment, and you’d still have some funds left over to help cover your closing costs. Depending on the DPA program, you may or may not need to repay the assistance.
Here’s a side-by-side comparison of the key features of the programs mentioned above:
|Loan Program||Down Payment Minimum||Credit Score Minimum*||First-Time Homebuyer Requirement||Income Limits|
|Standard 97% LTV||3%||620||Yes||No|
*Credit score minimums for home purchase loans for Draper and Kramer Mortgage Corp. borrowers.
If you’re thinking about buying a home, we’re here to help. Whether you’re a first-time buyer or a long-time owner, we can show you which programs you qualify for, calculate your expected upfront and monthly payments and help you get mortgage-ready for your home purchase. Get in touch today for a free mortgage consultation.
Programs included on this document are subject to approval based on individual program guidelines and borrower’s credit and underwriting approval. Contact your Draper and Kramer Mortgage Corp. professional for full program details and requirements.