Low Down Pmt Alternative to FHA

FHA has been the mortgage of choice for many Arizona home-buyers largely due to the low down payment requirement FHA offers (3.5% down).  As FHA mortgage insurance costs continue to rise homeowners fear that they are stuck with nowhere to turn.  Well fear not!  There are now low down payment alternatives to an Arizona FHA home loan.

As FHA has continued to increase the cost of a home buyer’s monthly mortgage insurance and make it impossible for mortgage insurance to be eliminated naturally, the need for another low down payment mortgage option has become more and more significant.

3% Down Payment Mortgage Has Arrived

Arizona home-buyers looking for a low down payment home loan are no longer cornered into a 3.5% down FHA mortgage.  Qualified home-buyers can now utilize a 3% down Conventional loan to purchase a primary residence.   Our low down payment Conventional loan option offers:

1. A 3% down payment requirement
2. Lower monthly mortgage insurance costs compared to FHA (provided borrower has at least a 740 credit score)
3. Ability to eliminate mortgage insurance once 20% equity is reached
4. No large lump sum/one time mortgage insurance premium (FHA charges both a monthly and one time mortgage insurance premium)
5. Minimum credit score is 680 (due to mortgage insurance regulations)

What’s The Difference Between FHA and Conventional?

There are some noteworthy differences between these two loan options:

1. Typically borrowers need to have better credit to go the Conventional route.
2. The allowable debt to income ratio is less on a Conventional loan compared to an FHA loan (Conventional loan = 45% max debt to income and an FHA = 56.99% max debt to income ratio).  Simply put, FHA allows a borrower to qualify for a higher loan amount.
3. FHA requires that a borrower finance a large up front mortgage insurance premium into their loan amount in addition to paying monthly mortgage insurance.  Conventional only requires a monthly mortgage insurance payment (at 3% down).
4. Conventional financing allows you to eliminate mortgage insurance once 20% equity has been established.

Homeowners Deserve Choices

When searching for a home and trying to set up a mortgage plan that fits a families needs, it is helpful to have access to multiple mortgage choices.  As a mortgage lender my job is to find a mortgage plan that fits each buyer’s needs.  Having access to different low down payment home loans makes it easier to accomplish that goal.

While FHA is still a great option, it is no longer a one size fits all loan program.  Each person seeking loan approval owes it to themselves to look at every single loan program available to them.  Not all lenders have access to a 3% down payment mortgage option so make sure you are working with a lender that does.  TIP: ask your Phoenix mortgage lender if they sell loans directly to Fannie Mae.  This program is backed by Fannie Mae in Maricopa County.

3% to 6% Down Can Make All The Difference

Let’s take this one step further!  If a borrower that was in the 3% to 3.5% down payment range can stretch to 5% to 6% they will find that there is whole new world of mortgage options out there for them.  In short, in the slightly higher 5% to 6% down payment range, buyer’s may be able to eliminate monthly mortgage insurance payments by paying mortgage insurance using alternative mortgage insurance options.  This can lower a monthly payment on a $300k mortgage over $300 per month compared to an FHA home loan.  See why it is worth a little extra work to explore ALL the options available in today’s market!

A mortgage is going to be a part of a buyer’s financial picture for years.  Hastily locking in to an FHA loan could cost an Arizona home buyer thousands of dollars over a period of years.  Call or email me today to find out what options you have available.  It’s easy!

By Jeremy House

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