Homebuyers purchasing a new home in North Carolina typically use the proceeds from the sale of their current home as part or all of their down payment. But if you are a first time home buyer? In this case, you will need to think about your down payment and closing costs.
The most popular loan choice in today’s marketplace is the conforming, 30 year fixed rate loan. Whether the loan is one underwritten to Fannie Mae or Freddie Mac standards, it’s by far the first choice among home buyers and for those refinancing their current mortgage.
Fannie and Freddie both require a down payment as do most mortgage programs but there are some government programs that do not require a down payment. You don’t automatically have to put down 20 percent to buy and finance a home.
The Federal Housing Administration first introduced this program back in 1934 as one of the ways Congress was trying to get the housing market and economy back on its feet after the Great Depression. Today, FHA is a leading choice for first-time buyers primarily due to the low down payment needed. The FHA loan asks for a down payment of just 3.5% of the sales price of the home. In addition, the down payment, as well as closing costs, can be paid for by a financial gift from a family member or qualified non-profit.
The FHA loan can be used to finance a primary residence only and is not to be used to finance a second home, vacation home or rental property. Credit guidelines for FHA loans are also somewhat relaxed, especially when compared to lower down payment conventional options. Read more about the FHA Details here.
The best way to reduce the amount needed for a down payment is to get a loan that requires $0 down payment. The VA home requires no down payment and also limits the types of closing costs the buyers are permitted to pay.
Veterans should first determine if they are eligible for the VA loan by checking their VA Entitlement. Once eligibility is established, buyers must get a copy of their Certificate of Eligibility. This can be done by visiting the nearest regional VA center or fax or mail a request. However, certain lenders are approved by the VA to have access to the Automated Certificate of Eligibility, or ACE, which can obtain the certificate on behalf of the buyers almost instantly.
Again, VA offers 100% financing with secure fix interest rates. Read more about all the VA Guidelines here.
USDA Rural Housing:
The next zero down loan is the USDA Rural Housing Loan. Designed to help buyers finance homes in more rural locations of NC, the USDA mortgage is used to finance homes that other mortgage programs wouldn’t due to the location of the property. The USDA highlights approved areas and uses demographic data taken from the U.S. Census. To find out if a property is in an approved area, buyers can check the USDA Eligibility Map here.
In addition to location, the USDA program limits the amount of household income in order to qualify. These income limits are set at 115% of the median household income for the area. If you’re thinking of buying a home in a rural or semi-rural area and want to come to the closing table with as little cash as possible, the USDA loan should be on your list.
Although this program is not available for homes in densely populated cities like Charlotte & Raleigh, many locations even “semi-rural” ARE approved.
Conventional 80-10-10 and 80-15-5:
This is a combination of two conventional loans, with the first mortgage being at 80 percent of the value of the home. Keeping the first mortgage at this level eliminates the need for private mortgage insurance. The first mortgage is followed up with a second, subordinate loan to make up for the difference between the 80 percent mark and the amount of down payment. With a 10% down payment, the second mortgage would then be at 10 percent of the value of the home. With a 5% down payment, the second mortgage would be 15 percent of the value of the home.
These two options work for both conforming and jumbo mortgage programs. Today, the conforming loan limit for most parts of the country, North Carolina included, is at $548,250 and any amount above that is considered a jumbo loan.
Conventional with PMI: You don’t need 20 percent down to get a conventional loan but if you put less money down then private mortgage insurance or PMI will be required. For example, you can make a 3% percent down payment with a conventional mortgage but the PMI payment will add to the cost. When obtaining a conventional loan and you want a lower down payment, at least something less than 20 percent, compare this structure with the 80-10-10 and 80-15-5 options.
Please contact us today to learn more about any of the programs listed. We can be reached 7 days by calling the number above, or just submit the Info Request Form on this page.