When deciding to pursue a lower down payment, the first decision is determining the best type of loan: FHA vs. Conventional. The determination will depend on many factors including: assets available, debt to income ratio, credit score, loan size, and more.
FHA will consider as little as 3.5% down payment making it the least down payment. Generally it will be more flexible for clients with some credit issues, higher debt to income ratios, down payment from gifts, or other such circumstances that might pose problems on other loans. In some cases, a client may choose FHA simply to get in the home with as little as possible out of pocket. FHA generally will have higher monthly mortgage insurance and a higher payment than some alternatives. Also, in a competitive bid, the seller may view FHA as riskier than a buyer using conventional financing.
Conventional is much more sensitive to a client’s credit score. With great credit, down payments as low as 5% are available. The mortgage will require Private Mortgage Insurance (PMI). PMI costs vary depending on the credit rating, loan size, and down payment percentage amount. While the guidelines are tighter than FHA, clients who qualify will generally find conventional to have a lower monthly payment than FHA.
It is always best to evaluate financing options as earlier in the home buying process as possible. Contact a licensed Loan Officer to understand which choice is best for a buyer’s particular situation.
Contributed by:
Tim Martin
Senior Loan Officer, NE Moves Mortgage, LLC
NMLS#16273 CT DOB#1801
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