Do you want to finance a home with as little money down as possible yet still have a competitive interest rate? There are three basic options for those who want to come to the closing table with as little money as possible and they are all government-backed. VA loans don’t require a down payment but are reserved for veterans, active duty personnel, National Guard and Armed Forces Reserves and spouses of veterans who died as a result of a service related injury. The USDA home loan program also doesn’t require a down payment but the property must be located in a specific area, primarily in rural and semi-rural areas and there are income limits placed on the borrowers. The third option, the FHA mortgage, is the most flexible of the three and can be used by anyone.
The FHA loan does require a down payment but the down payment is only 3.5 percent of the sales price of the home. It’s not as competitive as the VA and USDA program, but it’s close. On a $200,000 home, the down payment is just $7,000. Compare that to a 20 percent down conventional loan where the down payment would be $40,000! Borrowers can also get the down payment in the form of a gift from a qualified source. As long as the borrowers have at least $500 of their own funds in the transaction a gift for the down payment as well as closing costs is allowable. Qualified donors include family members, nonprofit agencies and government grants.
VA loans are reserved for certain individuals and USDA loans impose limits where the property may be located and how much money the borrowers can make. The flexibility of the FHA loan program doesn’t have such limitations. Buyers can finance a home using the FHA program regardless of the location of the property or required service in the armed forces. And even though the FHA mortgage is often the preferred choice for first time home buyers, being a first timer isn’t a requirement. Anyone can use the FHA loan to buy and finance a home regardless of any first time buyer status. As long as the borrowers occupy the property as their primary residence, the FHA loan is an excellent choice.
Finally, FHA loans offer multiple loan programs. When rates are low, a fixed rate is often the preferred choice. And not only can borrowers select a fixed rate FHA loan they can choose from various loan terms such as a 10 year term, 15, 20, 25 and 30 years. FHA loans also have a hybrid option. A hybrid loan is an adjustable rate mortgage that is fixed for a predetermined period, such as three, five, seven or even 10 years. After the initial fixed rate period, the loan turns into a mortgage that can adjust each year. Hybrids can be a good option compared to a fixed rate as the initial fixed rate on a hybrid is slightly lower than the fixed rate counterpart.
FHA loans offer choices and have options that other programs do not provide. Low down payment, lots of loan choices and no limits on location or income are all features of the FHA program. If these traits are appealing to you, it’s time to talk to a loan officer experienced with the FHA program.