Many potential home buyers have struggled to come up with a 20 percent down payment, and some lenders have come up with alternatives to help them. Some buyers have been able to use FHA loans as alternatives to the higher down payment, but these are not for everyone. Not all lenders want to manage the FHA loans due to regulations. Here is a quick review of some major lenders’ low down payment mortgage programs to help potential buyers.
Two of the government sponsored agencies, Fannie Mae and Freddie Mac, are able to provide the capital to the mortgage market and buy loans with 97 percent financing. This means that lenders are able to accept 3 percent down or less. These programs also allow for those with a low or moderate income level with a FICO score of 620 to 680 the opportunity to purchase a home.
Some lenders are also using some non-traditional methods for evaluating credit scores, such as looking at utility bills, rent, and tuition payments. This helps to include more potential buyers.
There are several lenders creating programs to help buyers. Each has a lower down payment, different FICO score and income requirements, and mortgage insurance requirements.
- Bank of America
Offers mortgages with as little as 3 percent down for qualified borrowers. Qualifications include a FICO score of at least 660, no more than a median income, and it must be the borrower’s primary residence. The borrower is not required pay private mortgage insurance.
- Wells Fargo
Offers a 3 percent down with a FICO score of 620 and a low to moderate income level. The FICO score is taken from the unique sources mentioned previously, and they also take into account income from others residing in the home, such as family members or renters. Mortgage insurance is required.
- JPMorgan Chase
Offers a similar program to Wells Fargo’s. To qualify the buyer needs a FICO score of 680 and they must carry the mortgage insurance.
- Quicken Loans
Offers a program to remove the purchasing barrier of the down payment. It allows for the borrower to put down 1 percent and receive a grant from the Quicken to make up the other 2 percent. The borrower needs a FICO score of 680, have a less than median income for the county where they reside and have a debt-to-income ratio of 45 percent or less. It does require the borrower to carry the mortgage insurance.
Offers a 3 percent down and will pay up to $5,000 to help with closing costs. There is no income limit requirement and is the only one that does not require mortgage insurance.
There are an increasing number of lending programs to help potential buyers obtain the mortgage they need to purchase a home without a 20 percent down payment. Some things that offset these programs for the lender vary, such as higher mortgage interest rates and mortgage insurance differences. It’s best to shop around the programs to find the one that works the best for your financial situation and the future of your loan repayment.
Jodi Bakst, Broker-Owner of Real Estate Experts based in Chapel Hill, North Carolina, is known for her strong negotiation skills. She is a fierce representative of her buyer and seller clients and she has trained the agents working with her to do the same