Do 5% Down Payment Programs Still Exist?

Do 5% Down Payment Programs Still Exist?

Absolutely!  In fact, there are programs available that allow for as little as a 3.5% down payment.  However, there are limitations on such programs that should be explained to you by a mortgage broker or loan officer.  Here a couple of common examples of when low down payment programs are allowed:

1)    Conventional Loans: If the loan amount does not exceed $417,000 (the national conforming loan limit) AND credit scores exceed 680, then a home buyer should be eligible for a 5% down payment.  The good news is that the rates on 5% down payment loans are usually the same as if you put 20% down.  The disadvantage is that the lender will require mandatory Mortgage Insurance (MI) that can cost hundreds/month.

2)    FHA Loans: FHA loan have become extremely common over the past few years because they allow for as little as 3.5% down payments (15% for condos/townhomes).  Plus, depending on the county the property is in, FHA allows for loan amounts up to $729,000, which can be very helpful in high-cost areas like the Bay Area.  In addition, FHA interest rates are as good or sometimes BETTER than conventional loans, which is a great advantage.  However, just like conventional loans, the lender will require mandatory mortgage insurance each month, which will cost hundreds of dollars; and FHA also requires upfront mortgage insurance that will be added to the loan (typically 1% of the loan amount).

These two examples are very popular and represent a significant portion of all loans originated in the United States.  Although the mortgage insurance premiums can be a significant investment each month, they are typically tax deductible and the home buyer can purchase a home for very little down, which offers the comfort of retaining some liquidity for home maintenance and cash reserves.

This article is copyrighted by Raziel Ungar and may not be reproduced or copied without express written permission.