Low Down Payment Mortgage Options: FHA and Conventional 97 Loans
As rising rental rates force more first-time buyers into the market, lenders are faced with a generation of home buyers who are largely unable to make the optimal 20 percent down payment. As such, more and more consumers are taking advantage of popular low down payment loan options, including FHA loans and the Conventional 97, both of which are government-backed.
The Federal Housing Administration (FHA) was created more than 75 years ago with the express purpose of helping more people own homes. Since the down payment is often cited by wishful buyers as the number one deterrent to purchasing a home, FHA loans allow consumers to put down considerably less than a conventional lender, sometimes as little as 3.5 percent of the purchase price. The funds may also come as a gift from family or friends, which is an added benefit not available with most conventional mortgage loans. Buyers putting down less than 20 percent will be required to pay a Mortgage Insurance Premium (MIP), which is similar to Private Mortgage Insurance (PMI).
Conventional 97 loans offer similar benefits. Available through Fannie Mae and Freddie Mac, a Conventional 97 loan only applies to owner-occupied, single family homes and is available to both first-time buyers and repeat buyers who have not purchased a home in the past three years.
Conventional 97 loans are all 30-year, fixed mortgages, and the loan must be used for the buyer’s primary residence only. As with other low down payment options, those choosing a Conventional 97 will also be required to pay Private Mortgage Insurance (PMI) until reaching 20 percent equity in the home.
To learn if an FHA loan or Conventional 97 loan may be right for you, schedule an appointment with a local mortgage lender. There is no commitment required, and a skilled lender can help you pave your way to owning the home of your dreams – even if you can’t afford a large down payment.
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