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If you’re ready to buy a home but don’t have enough savings for a down payment, you have some options.
The Federal Housing Administration (FHA) is a government entity that insures mortgages for homebuyers with down payments as low as 3.5%. An alternative option for buyers with low down payments is to obtain a conventional mortgage that is not government-insured.
In both cases, homebuyers pay mortgage insurance. This insurance is an additional expense on top of the mortgage payment. Mortgage insurance can last for a set number of years, or through the life of the mortgage. Is one type of low down payment mortgage better than the other? Here are some features to compare for a 30-year fixed rate mortgage with a minimum down payment:
Chart update 09/09/15
|FHA-insured mortgage||Conventional mortgage with private mortgage insurance (PMI)|
|Minimum down payment requirement||3.5%||3%|
|Base mortgage rate||
Typically lower than conventional
Typically higher than FHA-insured mortgages with the same down payment
Mortgage insurance premium
|Mortgage insurance premium 0.85% of the purchase price|
Mortgage insurance cancellation
|Mortgage insurance payments continue for the full life of the mortgage. For a down payment of 10% or greater, the insurance payments are cancelled after the earlier of 11 years or when the mortgage is paid off.||Mortgage insurance payments stop at the borrower’s request when the mortgage balance is paid down to 80% of the home’s value.|
Credit score requirements
|Lower credit score standards||Higher credit score standards|
Want to discuss your homebuying options? Contact me for a free consultation!