Freddie Mac just introduced a NEW Conventional 3% Down Program for First-Time Buyers called HomeOne. This new program is especially aimed at helping more Millennial buyers qualify for home-ownership. With it’s low down payment requirement, No income level restrictions, and the ability to remove the monthly mortgage insurance “PMI” from the mortgage payment, this program will help more buyers qualify to purchase a home. Check out how to qualify.
The Benefits of a 3% Down Mortgage With No PMI
The conventional 3% down mortgage is helping many buyers obtain home ownership, who may have not been able to otherwise.
I hear all the time from buyers who tell me they assumed they needed to save up 20% to buy a home without monthly mortgage insurance. They are excited when I tell them they only need 3% down to remove the monthly PMI.
Being able to remove the monthly PMI is helping buyers obtain a lower monthly payment, and is helping alleviate the fears of having to take a loan with monthly mortgage insurance.
This program also allows ALL of the down payment and closing costs to be gifted, so buyers can reach out for a gift instead of having to wait and save up the full 3% down payment.
This conventional program is a great option for buyers in complexes that are NON FHA approved, so now you have more inventory to choose from and agents have more homes to show them.
This conventional program will help some buyers afford to purchase a single family home instead of a FHA condo, as it frees up having to pay FHA monthly mortgage insurance and HOA dues, which can both amount to roughly $600-$700 a month on a typical condo. This will open up more inventory to review.
If you know someone who is postponing a purchase to save more money, let them know about this program.
Compare The Savings on a $465k Home Purchase with No Monthly PMI, vs a Mortgage With Monthly PMI.
Let’s compare the conventional 3% down mortgage with No PMI to other low down payment options, which require monthly mortgage insurance to purchase a home.
To calculate property taxes, we will also use 1.2% of the purchase price, so $465 a month, and $60 a month for a homeowner’s insurance policy, so we can calculate what the total monthly PITI (principal and interest, taxes and insurance) payment is for each scenario.
Option #1. The figures on the first column is a conventional 3% down loan with No PMI. The approximate rate on a conventional 30 year fixed with No PMI is 4.875%. The total monthly PITI payment is $2,911.
Option #2. The figures on the second column, is a conventional 3% down loan with PMI. The rate on a conventional 30 year fixed with monthly mortgage insurance is lower at 4.625%, but there is also monthly mortgage insurance of $263 that is included in the monthly mortgage payment. The total monthly PITI payment is $3,107.
Option #3. The figures on the third column, is a FHA 3.5% down loan with monthly mortgage insurance. The rate on a FHA 30 year fixed is 4.375%, but there is also monthly FHA mortgage insurance of $315. There is also a FHA funding fee of 1.75% due on all FHA loans, this fee of $7,852 was added to the loan amount in this example. The total FHA monthly PITI payment is $3,120.
As you can below, option #1 with the conventional loan and No PMI will help you obtain the lowest monthly payment and save you the most money.
It will save you $195 a month over the conventional loan with PMI, and saves $208 over the FHA loan.
Over the next 15 years the conventional loan with no PMI will save $15,604 over the conventional loan with PMI, and $27,693 over the FHA loan.
In Summary. Instead of taking the conventional or FHA loan option and paying the mortgage insurance each month, the conventional loan with No PMI will give the buyer the lowest monthly payment.
Important to remember with FHA, if you put down less than 10% with FHA, you have to pay the monthly mortgage insurance for the life of the loan. Click HERE for a summary of the current FHA mortgage insurance rules.
Frequently Asked Questions for the 3% Mortgage
Here are the most frequently asked questions that buyers and real estate agents have in regards to the conventional 3% down No PMI loan option.
1. What is the maximum loan amount I can borrow with 3% down?
The maximum loan with 3% down is $453,100, which is the conventional loan limit.
If you need to finance over $453,100, the minimum down payment is only 5%. For example, in San Diego a buyer can finance a 5% down conventional jumbo loan up to $649,650 with No PMI. In Orange County and Los Angeles County a buyer can finance a 5% down conventional jumbo loan up to $679,650 with No PMI. Click HERE for more information.
2. Can I receive the 3% down payment as a gift?
Yes, all of the 3% down payment can be gifted. Closing costs and reserves can also be gifted if needed.
3. What credit score is required to qualify for this program?
We only require a 620 credit score to qualify for conventional financing. You need a score 700 to remove the PMI. Please note, the lower the credit scores the higher the interest rate will be.
4. How do you eliminate the monthly mortgage insurance “PMI’ option on this program?
All you have to do is take a slightly higher interest rate than normal, say from 4.625% to 4.875%, and we use a lender credit with the higher interest rate to eliminate the PMI from the mortgage payment. This is also known as lender paid mortgage insurance.
5. Can I get 3% down with No PMI on 2nd homes or Investment Properties?
No, the 3% down is for Primary Residences only. On 2nd homes, you only have to put down 10% to obtain the No PMI payment option.
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?
If there is one buyer they have to be a first time buyer. If there are 2 buyers, only one of them has to be a first time buyer.
8. Are there income limits for this program?
No, there are NO income restrictions with this program, so 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 3% down and get the No PMI option.
10. Can I use an adjustable-rate mortgage with the 3% down mortgage?
No, the 3% down mortgage requires a 30-year fixed rate mortgage only.
11. What is the maximum number of units for a home with the 3% down payment mortgage?
The 3 percent down mortgage is for single-unit homes only. This includes single-family detached homes and single-family attached homes such as condominiums and town homes. 2-unit homes, 3-unit homes, and 4-unit homes cannot be financed with the conventional 3% down mortgage.
12. What if i put down 5% or 10%, will I get a lower rate?
Yes, if you put down 5% or 10% for the down payment, you will get a lower interest rate. The larger the down payment, the lower the interest rate you will get with conventional financing.
Refinance Tip For homeowners – Refinance up to 97% of Your Property Value with No Monthly PMI
This 3% down conventional program with No PMI also works the same for refinances, as homeowners with limited equity can now refinance up to 97% of their home without having to pay any monthly mortgage insurance.
For example, many homeowners who bought a home over the past 12-24 months using a FHA loan and a minimum down payment of 3.5%, have probably gained at least 8%-10% equity due to appreciation.
This 3% down conventional loan program is a great option to help them refinance out of their current loan with mortgage insurance, and into this conventional loan option with No PMI, so they can save some extra money and get a lower monthly payment.
We have helped many of our clients who bought over the past few years with a FHA loan refinance into conventional loan with No monthly PMI, and save them on average $200-$300 a month.
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. I look forward to chatting soon.
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