Are you trying to save enough money to buy your first home? If so, you’re probably wondering how much you need. That amount varies based on loan type. Here is a summary of how much to save, along with the pros and cons of each mortgage type.
Conventional (3 – 10% Down Payment)
The minimum down payment ranges from 3 – 10%. The more you put down, the better your application looks. There are certain income restriction guidelines for the 3%. It’s specifically for lower-income earners. These special programs are called HomeReady from Fannie Mae and HomePossible from FreddieMac.
Although the lowest credit score for a conventional mortgage is 620, you won’t be getting the best rate with a score that low. You’ll need a 740 or above to get the best interest rate.
- Pros
Conventional financing has the best rates and can finance most single-family properties regardless of occupancy. If you want to buy a rental – conventional financing is probably your best option. - Cons
Conventional requirements are the most demanding from a credit qualifying standpoint. Many first-time homebuyers find it too hard to qualify for a conventional loan. Instead, their only option is a government loan (FHA, USDA, VA). - PMI
If you put down less than 20%, you’ll have private mortgage insurance (PMI). That can add $100 or more per month to your payment. But once you have 20% or more equity, your lender must remove the PMI.
A conventional home loan is a good choice if you have great credit and at least 5% down.
Government Home Loans
There are many things to love about government loans, and many first-time homebuyers agree. Let’s discover why.
Credit Requirements
Government home loans have very flexible credit guidelines. You can get into a loan with a score of only 580. And if you’ve had a bankruptcy in the past, the guidelines are more forgiving.
FHA (3.5% Down Payment)
- Pros
You can get an FHA loan with only 3.5% down. That’s why so many first-time homebuyers choose this option. - Cons
The biggest disadvantage on an FHA loan is that you’ll have a mortgage insurance premium (MIP) for the life of the loan – even after you have 20% equity. So, the only way to get rid of the MIP is to refinance into a conventional loan.
And that’s what many borrowers do. They get their foot in the door with an FHA loan, work on their credit, build their equity and then refinance after a year or so.
An FHA home loan is a good choice if your FICO credit score is lower than 620 and you’ve saved 3.5% for the down payment.
USDA (0% Down Payment)
- Pros
You can get a USDA loan with nothing down. - Cons
It must be for a rural property. If you’re shopping in the city – forget about USDA loans.
A USDA home loan could be a great deal if you’re looking for property in the country.
VA: (0% Down Payment)
- Pros
You can get a VA loan with nothing down. The rates are very low. - Cons
You have to be a veteran, service member, or surviving wife. Here are the VA requirements. Although there isn’t PMI, there is a funding fee that can be substantial.
A VA home loan could be a great deal if you qualify.
Borrowers Have Several Choices
Many first-time homebuyers find that they can qualify for one of the options above. At Homestead Financial Mortgage, if you don’t qualify yet – don’t worry. We’ll work with you until you do.
Homestead Financial Mortgage’s low-interest home loans are some of the best in the states we serve. We’re licensed in Arkansas, Colorado, Florida, Illinois, Indiana, Kansas, Kentucky, Missouri, Montana, Ohio, Oklahoma, Tennessee, Texas, and Wisconsin.
Contact us today to learn more about the home loan products we offer that are right for you.