The best low down payment program available in the market right now for all buyers, is the conventional 5% down loan option with No monthly mortgage insurance “PMI”. Too many buyers today assume, they have to take FHA financing with its really expensive monthly mortgage insurance if they only have a limited down payment of around 5% to purchase a home, or they need to put down 20% to eliminate the mortgage insurance or PMI” on a conventional loan. Instead, buyers can now purchase a home with only 5% down conventional financing, and No monthly PMI on a low 30 year fixed rate. Here is what you need to know to qualify for this program.
Top Mortgage Originators in 2013
First of all I wanted to share some good news. The 2013 Top 200 Mortgage Originators Nationwide were just announced by Origination News (see below), and I was ranked #51, there are currently over 225,000 licensed loan officers in the country. You can click on this LINK to see the complete rankings report.
The Best Low Down Payment Program Available for ALL Buyers
As housing markets across the country continue to appreciate in value, it is a very positive sign that lenders are comfortable offering low loan down payment programs to help buyers purchase a home.
The conventional loan program with 5% down and No monthly PMI is the best low down payment available for buyers in the market right now, as this loan option will help buyers obtain the lowest monthly payment on a home loan. Whereas if you put down less than 10% with FHA financing, new rules require that you pay the FHA mortgage insurance for the life of the loan.
Let’s compare a 5% down conventional purchase with No monthly PMI vs a 3.5% down FHA purchase.
Compare the Monthly Savings With Conventional 5% Down and No PMI vs FHA financing
Here is an example comparing a $400k purchase with 5% down conventional and No PMI, versus a FHA 3.5% down purchase with mortgage insurance.
On the left side, is the conventional 5% down No PMI option. The rate on a 30 year fixed is 4.375% with no points. The 5% down payment is $20k, the loan amount is $380,000. The monthly PITI (principal and interest, taxes and insurance) payment is $2,345.
On the right side, is the FHA 3.5 down payment option with mortgage insurance “MIP”. The rate on a FHA 30 year fixed is lower at 4%, but the FHA mortgage insurance is $441 a month. The minimum down payment due is 3.5%, which is $14k, but there is also a 1.75% FHA funding fee of $6,755 that is due on all FHA loans, this fee of $6,755 gets added to the loan amount of $386k, so the total loan amount on the FHA option is $392,755. The total FHA monthly PITI payment is $2,757, which is $412 more a month over the conventional option.
As you can see, the conventional option with 5% down and No PMI saves the buyer $412 a month. Over the next 15 years, the Conventional buyer will save $71,565 over the FHA buyer (see total interest and MI paid over 15 years below). Remember too, the FHA buyer will pay FHA mortgage insurance for the life of the loan, see HERE for additional information on the new FHA mortgage insurance rules.
In Summary. Instead of taking the FHA loan option and paying the expensive FHA mortgage insurance each month, the conventional loan with No PMI will give the buyer the lowest monthly payment.
Or, the conventional buyer can can put the additional $412 monthly savings into purchasing an extra $75k in home and still have the same monthly payment as the FHA buyer.
Frequently Asked Questions for the 5% Down Program with No PMI
Here are the most frequently asked questions that buyers and real estate agents have in regards to the conventional 5% down No PMI loan option.
1. What is the maximum loan amount with 5% down?
The maximum loan with 5% down is $417k, which is the conventional loan limit. This No PMI option is also available to 90% financing on conventional jumbo loans. For example, in San Diego a buyer can finance up to 90% loan-to-value and a maximum loan of $546k with No monthly PMI, and a buyer in Orange County and LA can finance up to 90% and a maximum loan of $625k with No monthly PMI, which are the Fannie Mae jumbo loan limits for these respective counties.
2. Can the buyer receive the 5% down payment as a gift?
Yes, all of the 5% down payment can be gifted. But please note, lower credit scores may require part of the 5% down payment to come directly from the buyer. We run the buyers loan application through Fannie Mae’s conventional underwriting system, which will determine if any down payment is required directly from the buyer.
3. What credit score is required to qualify for this program?
We only require a 620 credit score to qualify for this loan program. Please note, the lower the credit scores the higher the interest rate will be.
4. How do you Eliminate the Mortgage Insurance?
It’s very simple. All you have to do is take a slightly higher interest rate than normal, say from 4.375%% to 4.625%, and we use a lender credit with the higher interest rate to eliminate the PMI from the mortgage payment.
*Please note, there is also the option to take a lower interest rate, but there will be a monthly mortgage insurance premium that will be included in your payment, this will always have a higher overall monthly mortgage payment than the loan option with No monthly PMI. Ask me for a comparison between both options.
5. Can you get 5% down with No PMI on 2nd homes or Investment Properties?
No, the 5% down is for Primary Residences only. On 2nd homes, you only have to put down 10% to obtain the No PMI payment option. On investment properties this program is not available, as you have to put down 20%, which eliminates the Mortgage insurance anyway.
6. Are co signers allowed on this program?
Yes co-signers are allowed on this program, the co-signer does NOT have to reside in the home.
7. Is this program for first time buyers only?
No, this program is available for all buyers.
8. Are there income limits for this program?
No, any buyer can qualify for this program regardless of income.
9. Do condos qualify for this program?
Yes, you can also purchase a condo using this program with only 5% down and get the No PMI option.
10. But FHA rates are lower than this program?
Yes FHA rates are lower, but when you factor in the very expensive FHA monthly mortgage insurance, the FHA overall monthly payment will always be higher than this 5% down No PMI option.
11. What if I Put Down 10% or 15, Do I Get a Lower rate?
Yes, if you put down 10% or 15% as a down payment, you will get a lower interest rate. Essentially the larger the down payment, the lower the interest rate you will get with conventional financing.
4 Other Great Benefits for Using Conventional Financing vs FHA for Buyers
There are some other great benefits to using conventional vs FHA, so buyers have more homes to choose from
1. This conventional program is a great option for buyers in complexes that are NON FHA approved, so now buyers have more inventory to choose from and agents have more homes to show them!
2. This conventional program will help some buyers afford to purchase a single family home instead of a condo, as it frees up having to pay the FHA mortgage insurance and HOA dues, which can amount to roughly $600-$700 a month on a typical condo. This will open up a lot more inventory for buyers to purchase.
3. Conventional does NOT have an anti-home flipping policy, which means conventional buyers are allowed to purchase homes that are being fixed up and flipped by investors with less restrictions. So now you don’t have to worry about the FHA’s strict anti-home flipping policies either (which may require 2 appraisals etc)!
4. Compared to conventional financing, FHA appraisals can be a little more strict in terms of asking sellers for repairs on a property, so this is another benefit of going conventional.
To help a buyer find a home and get into contract these days, it is important to get creative, and this program is one way to do that!
*REFINANCE TIP: This program also works the same for refinances, as borrowers with limited equity can now refinance up to 95% of their home without having to pay any mortgage insurance. Homeowners who bought a home over the past 12-24 months have probably gained between 10-15% equity again due to appreciation, so this is a great option to help them refinance out of their current loan with mortgage insurance, and into this conventional NO PMI option, so they can save extra money each money and get a lower monthly payment.
If you would like to get approved for this program, or you have any questions about any of this information above, please feel free to contact me directly at 858-442-2686.