Home Buyers and First Time Home Buyers Low Down Payment Options
Home buyers, and more specifically, First Time Home Buyers often ask what the best options in mortgage are for the lowest down payment programs. Outside of the VA and USDA mortgage, which are actually zero down payment programs, there are 3 program options for low down payments. Those are the FHA with MIP requiring a minimum of 3.5% down payment, convention with PMI requiring a minimum of 5% down, and convention 80/15/5 with the use of a 2nd lien to avoid PMI.
MIP (Mortgage Insurance Premium) – this is a monthly payment that is added to your normal monthly mortgage payment that insures the lender, NOT THE BORROWER, in case you default on your mortgage in FHA loans
PMI (Private Mortgage Insurance) – this is a monthly payment that is added to your normal monthly mortgage payment that insures the lender, NOT THE BORROWER, in case you default on your mortgage in convention loans
80/15/5 – this is a combination loan style. 80% first loan, 15% second loan, and 5% down payment. This is an option used to avoid mortgage insurance and many times accumulates equity faster because of more aggressive options in the 2nd lien programs
Lowest Monthly Payment Option Mortgages
If you are looking for the program with the lowest monthly payment, you will usually find that the FHA option and the conventional option with mortgage insurance is the best way to go. Typically, the combination program in conventional is a little higher, but since you can get the 2nd lien in a 15yr note, and the payment isn’t much more than the other options, that 15 yr term makes it possible for you to speed up the equity situation faster. Additionally, the combination option is much more of an efficient financing style over time, because when you pay off the second loan, that loan payment completely goes away and your total combined payments will drop significantly and you can focus more aggressively on your original 1st loan thereafter.
For more details about FHA, Conventional PMI, and combination conventional mortgages, check out those hyperlinks or call me and I’ll be glad to educate you with no obligations.