Mortgage Rates At All-Time Lows
2015 is another great year for housing in America. Home sales are on the rise, home supply is diminishing, and prices are skyrocketing in most places. To top it all off, mortgage rates are dropping like stones. What’s a person to do in a red-hot market like this? Aside from buying a home, you can start flipping like those guys on TV!
30-year mortgage rates are below 4% nationwide, their lowest levels of all-time. Many lenders now quote rates and APR in the 3’s; with rates for FHA loans and VA loans beating rates for conventional loans. Lower mortgage rates mean lower monthly payments.
Unfortunately, many first time home buyers are still under the impression that they must start out by putting 20% down. This simply is not true. Most mortgage programs today require little or no money down.
No Need To Put Down 20%
Buyers in today don’t need 20 percent down. Many believe they do. The reason buyers believe they must have a twenty percent down payment is required is because in a conventional mortgage, it removes the need for private mortgage insurance.
Private mortgage insurance is to protect a lender in the event of default, so it’s a good idea to have it anyway. Mortgage insurance costs vary by down payment, state, and the potential homebuyer’s credit score.
FHA Mortgage Requires Only 3.5% Down Payment
The FHA doesn’t actually make loans, it only insures them. The FHA has standards for the loans it will insure. When a bank underwrites and funds the FHA agrees to insure that loan against loss.
FHA mortgage guidelines are famous for their liberal approach to credit scores and down payments. The Federal Housing Administration will typically insure a home loan for borrowers with low credit scores so long as there’s a reasonable explanation for the low FICO. The FHA allows a down payment of only 3.5 percent, with the exception of a few FHA approved condos.
Furthermore, the FHA supports homeowners who have experienced recent short sales, foreclosures, and bankruptcies through the agency’s Back to Work program; and will reduce its FHA mortgage insurance premiums for first time buyers via the Homeowners Armed With Knowledge (HAWK) program.
The FHA insures loan sizes up to $625,500 in designated “high-cost” areas nationwide. High-cost areas include Orange County, California; the Washington D.C. metro area; and, New York City’s 5 boroughs.
Conventional 97 Program Requires Only 3% Down Payment
The Conventional 97 program is available from Fannie Mae and Freddie Mac. It’s a 3 percent down payment program and it’s a less-expensive option as compared to an FHA loan.
Furthermore, the Conventional 97 mortgage will usually allow for its entire three percent down payment to come from gifted funds, so long as the gift source is related by blood or marriage; or via legal guardianship or domestic partnership; or is engaged to be married.
The Conventional 97 program does not have minimum credit score requirements. The program can be used to refinance a home loan, too.
VA Loans: No Money Down With 100% Financing
The VA loan is a no-money-down program available to members of the U.S. military and surviving spouses. Active duty and honorably discharged service personnel are eligible for the VA program. In addition, potential home buyers who have spent at least 6 years in the Reserves or National Guard are eligible, as well as spouses of service members killed in the line of duty.
VA loans also allow for loan sizes of up to $1,094,625 in high-cost areas. This can be helpful in areas such as San Francisco, California; and Honolulu, Hawaii which are home to United States military bases.
USDA Mortgage: No Money Down With 100% Financing
No Money Down options exist for non-military borrowers, too. The USDA (United States Department of Agriculture) offers a 100% mortgage. The program is formally known as a Section 502 mortgage, but, more commonly, it’s called a Rural Housing Loan.
The good news about the USDA Rural Housing Loan is that it’s not just a “rural loan” — it’s available to buyers in suburban neighborhoods, too. The USDA’s goal is to reach “low-to-moderate income homebuyers”, wherever they may be.
Most potential home buyers using the USDA Single Family Housing Guaranteed Loan Program make a pretty decent living and typically reside in neighborhoods which don’t meet the traditional definition of rural.
Another key benefit is that USDA mortgage rates are often lower than rates for comparable, low- or no-down payment mortgages. Financing a property using the USDA can be the lowest cost means of homeownership.
As you can see, none of these loans require a minimum owner occupancy term, so flipping houses is now easier than ever. Picking the one that you want to stay in may be difficult.