• Categories

  • Connect with Michael

  • The 3% Down Conventional Mortgage With No Monthly PMI For Homebuyers

    There is a terrific mortgage program available for borrowers who want to purchase a home or refinance! It is a conventional mortgage that only requires a 3% down payment and there is also an option to eliminate the monthly mortgage insurance “PMI”. Until recently, buyers had to put down 5% to qualify for conventional financing, or they were stuck with FHA financing and expensive monthly mortgage insurance if they only had a minimum down payment. Here is how to qualify for this program.

    The best low down payment mortgage option available to homebuyers

    The conventional 3% down mortgage is the best mortgage option available for first time buyers in today’s market. This program is helping many first time buyers obtain home ownership, who may have not been able to otherwise.

    It is allowing buyers to purchase a home with a low down payment and a low fixed rate.

    It also allows ALL of the down payment to be gifted, so this means buyers can reach out for a gift instead of having to wait and save up the full 3% down payment.

    There is also an option to eliminate the monthly mortgage insurance “PMI” from the mortgage payment, so this is helping buyers obtain an even lower monthly payment.

    Let’s compare the conventional 3% down mortgage with No PMI to other low down payment options to purchase a home.

    Compare the savings on a $400k home purchase with and without monthly mortgage insurance “PMI”

    On this $400k home purchase example, we will compare the savings on a conventional 3% down loan, with and without monthly mortgage insurance, and a FHA 3.5% down loan with monthly mortgage insurance.

    To calculate property taxes, we will also use 1.2% of the purchase price, so $400 a month, and $75 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.

    *Please ask me for current rates, as the rates used in the example below are not current.

    Option #1. The figures on the first column, is a conventional 3% down loan with No PMI. The rate on a conventional 30 year fixed with No PMI is 4.375%. The total monthly PITI payment is $2,412.

    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 3.99%, but there is also monthly mortgage insurance of $354. The total monthly PITI payment is $2,680.

    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%, but there is also monthly FHA mortgage insurance of $278. There is also a FHA funding fee of 1.75% due on all FHA loans, this fee of $6,755 was added to the loan amount in this example. The total FHA monthly PITI payment is $2,628.

    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 $269 a month over the conventional loan with PMI, and saves $216 over the FHA loan.

    Over the next 15 years the conventional loan with no PMI will save $15,889 over the conventional loan with PMI, and $39,022 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.

    Remember too, 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 conventional 3% down 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 with 3% down?

    The maximum loan with 3% down is $417k, which is the conventional loan limit.

    This No PMI option is also available with 10% down financing on conventional jumbo loans. For example, in San Diego a buyer can finance a jumbo loan up to $546k and only put down 10% to eliminate the PMI. In Orange County and LA you can finance a loan up to $625k and only put down 10% to eliminate the monthly PMI, which are the Fannie Mae jumbo loan limits for these respective counties. See HERE for more information on the 10% Jumbo option with No PMI.  *As of December 12th, Fannie Mae is lowering the down payment requirement on a conventional jumbo loan from 10% to 5%.

    2. Can I receive the 3% down payment as a gift?

    Yes, all of the 3% down payment can be gifted on this program. 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 this loan program. Please note, the lower the credit scores the higher the interest rate will be.

    4. Is private mortgage insurance “PMI” required with the 3% down mortgage program?

    Yes, borrowers are required to pay private mortgage insurance “PMI” on the 3% down mortgage. The amount of monthly mortgage insurance you pay will depend on your credit score. There is also an option to eliminate the monthly PMI from the mortgage payment.

    5. How do you eliminate the monthly mortgage insurance “PMI’ option on this program?

    It’s very simple. All you have to do is take a slightly higher interest rate than normal, say from 4% to 4.25%, 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.

    6.  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. On investment properties this program is not available, as you have to put down 20%, which eliminates the Mortgage insurance anyway.

    7. 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.

    8. Is this program for first time buyers only?

    As long as you have not had any ownership in a property in the past 3 years, you can qualify for this program. Or, if there are 2 buyers, only one of the buyers must be a first time buyer. *As of December 20th, all buyers can qualify for this program.

    9. Are there income limits for this program?

    No, any buyer can qualify for this program regardless of income.

    10. 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.

    11. 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

    12. 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.

    13. But FHA mortgage rates are lower than this program?

    Yes FHA interest 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 3% down No PMI option.

    14. What if i put down 5% or 10%, will I get a lower rate?

    Yes, if you put down 5% or 10% 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 reasons the Conventional 3% down program will benefit buyers vs FHA

    There are some other great benefits to using this conventional program with no monthly mortgage insurance vs FHA  financing, so you have have more available homes to choose from.

    1. 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!

    2. This conventional program will help you afford to purchase a single family home instead of a condo, as it frees up having to pay monthly 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 you 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)! In fact, FHA buyers have to wait 90 days before they can buy a flipped home.

    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.

    It is important to get creative to find a home and get into contract these days, and this program is one way to help you do that!

    *Refinance Tip For homeowners

    This program 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 10%-15% equity again due to appreciation. So this loan program is a great option to help them refinance out of their current jumbo 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 been able to help many of our clients who bought over the past few years with FHA, refinance into conventional programs with limited equity and No PMI, and save 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.

    Tags: , ,

    This entry was posted on Monday, April 15th, 2013 at 12:49 am and is filed under The 3% Down Conventional Mortgage With No Monthly PMI For Homebuyers. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.