There are various low down payment mortgage loan options available in the US, including Fannie Mae HomeReady, Freddie Mac Home Possible, FHA loans, VA loans, and conventional loans with private mortgage insurance (PMI). Here’s a breakdown of these programs and how Steadworth compares.

FHA Loans

FHA loans require a down payment of 3.5% for those with credit scores 580 and higher. If your score falls between 500 and 579, you need to make a down payment of at least 10%.

FHA loans have loan limits based on the county in which the home is located. In 2023, the limit ranges from (upper limit in low cost county) $472,030 to (upper limit in high cost county) $1,089,300. This essentially caps the price of a home you are able to finance using an FHA loan. FHA loans are also only available for first-time home buyers.

Borrowers are required to pay an upfront mortgage insurance premium (UFMIP) of 1.75% of the loan amount and an annual MIP, which can add to the overall cost of the loan. FHA’s mortgage insurance coverage lasts the life of the loan unless you put 10% or more down (then it lasts 11 years) or you refinance to a conventional loan after building enough equity.

FHA loans also require that the property undergoes an FHA appraisal to make sure it meets government standards for health and safety. These appraisals are more rigorous than standard appraisals.

Fannie Mae HomeReady and Freddie Mac Home Possible

Fannie Mae HomeReady and Freddie Mac Home Possible are low down payment mortgage loan programs designed to help low-to-moderate-income borrowers purchase homes. HomeReady and Home Possible offer down payment options as low as 3% and allow for income from non-borrower household members to be considered. To qualify for these loans, your income must not exceed 80% of the area’s median income (AMI). HomeReady and Home Possible also offer reduced private mortgage insurance rates compared to traditional PMI.

VA Loans

VA loans are only available to military service members and require no down payment. There are no loan limits for VA loans, but there are funding fee requirements.

Conventional Loans with PMI

Conventional loans with PMI require a down payment of 3-5% of the home's value. PMI is typically required until the borrower has built up at least 20% equity in the home. PMI costs can vary depending on the borrower's credit score and down payment amount, but the rate generally ranges between 0.58% and 1.86%.

State Specific Programs

There are also state specific down payment assistance programs. Most of these programs have income and purchase price limits. For example, the California Dream for All Program has income limits and homebuyers can expect these program funds to runout quickly due to high demand.

Conclusion

Low down payment mortgage loans are a viable option for homebuyers who do not have a large amount of cash on hand for a down payment. However, each loan option has its own set of advantages and disadvantages. Fannie Mae HomeReady and Freddie Mac Home Possible offer low down payment options with reduced PMI rates, but there are still income limits. FHA loans offer low down payment options, but they have loan limits, MIP requirements, and are only available to first-time home buyers. VA loans offer no down payment options, but there are funding fee requirements. Conventional loans with PMI offer low down payment options, but PMI can add to the overall cost of the loan.

Steadworth is a great alternative to these options for the following reasons:

1. Home buyers can avoid the burden of PMI or MIP. This means significant monthly savings.

2. There are no income limits. This increases accessibility to an additional group of homebuyers.

3. There are no loan limits.

4. You do not have to be a first-time home buyer or a veteran to qualify. Steadworth is for everyone!

5. The demand is there.