Nothing could be further from the truth.

The fact is that there have always been and always will be mortgage options for borrowers that don’t have a large down payment.  Here are five loan options for those who have 5 percent or less for a down payment.

Check your eligibility to buy a house with less than 5% down. Start here (Sep 16th, 2024)

#1: Conventional loans with PMI

Conventional loans are mortgages approved using guidelines established by mortgage giants Fannie Mae and Freddie Mac. Historically, lenders required a down payment of 20 percent. Yet in 1957, private mortgage insurance, or PMI, was introduced.

Mortgage insurance is an insurance policy that repays the lender should the borrower default. The borrower pays for this insurance policy along with their monthly mortgage payment. This extra expense can be well worth it though.

Say a home is sold for $200,000. A 20% down payment is $40,000. That’s quite a lot for new home buyers. A 5 percent down is much more feasibly, at only $10,000. A PMI policy can be purchased at a cost of approximately $150 to $300 per month, depending on credit score. But this option helps bring down the barriers to homeownership significantly.

Check your home buying eligibility. Start here (Sep 16th, 2024)

#2: Federal Housing Administration (FHA) loans

In recent years, FHA has been the standard for first-time home buyers. Although that’s shifting because of increased offerings in conventional lending, they are still very popular.

FHA loans require as little as 3.5% down, a bit less than the conventional requirement. That means on a $200,000 loan, the minimum down payment is just $7,000.

An FHA loan has a monthly mortgage insurance requirement like a conventional loan, but it also has an “upfront mortgage insurance premium,” or MIP. The MIP is 1.75% of the loan amount, or in this example an additional $3,500. However, this upfront premium does not have to be paid out of pocket and can be rolled into the loan amount.

The monthly mortgage insurance premium for an FHA loan is typically 1.35% of the loan amount per year, divided into 12 equal installments and added to the monthly payment. For example, a $200,000 total loan amount would require $225 per month in mortgage insurance.

Although an FHA loan is more expensive than its conventional counterpart, it allows for a lower credit score and offers more lenient income requirements, making it the best program for some home buyers.

Check your eligibility for an FHA loan. Start here (Sep 16th, 2024)

#3: VA loans

This program is a special entitlement offered to active duty personnel and veterans of the U.S. armed forces. The VA loan requires no down payment whatsoever. In addition, there is no monthly mortgage insurance premium, just an upfront premium, usually 2.3% of the loan amount.

The minimal costs associated with this loan make it the clear choice for current and former members of the military.

Those who have served in one of the branches of the military including the National Guard or Reserves could be eligible.

For complete guidelines, see our VA home loan page or contact a VA-approved lender.

Check your VA home loan eligibility. Start here (Sep 16th, 2024)

#4: USDA loans

Sometimes referred to as the Rural Development Loan, the USDA program requires no down payment.  As the name implies, the program is designed to assist borrowers buy and finance a property in rural, less urban areas.

In order to qualify for a USDA loan, the property must first be located in an eligible area. These areas are mapped on the USDA website. This is the first place borrowers should visit to see if a prospective home is eligible. By entering the address on the website, the property’s eligibility will be determined.

Eligible areas are often rural in nature, but surprisingly, many eligible areas are suburbs of bigger metropolitan areas. Even if you don’t think the area in which you’re looking to buy a home is eligible, it’s worth taking a look at the USDA loan map.

You could discover that you’re able to buy a home with zero down payment.

Check your eligibility for a USDA loan. Start here (Sep 16th, 2024)

#5: Fannie Mae HomePath loans

Editor’s note: Fannie Mae ended their HomePath program on October 6, 2014. For more details, visit our Fannie Mae HomePath page.

Fannie Mae has a list of foreclosed properties that it offers for sale on the website HomePath.com. Buyers can look for homes in their area with a simple city or ZIP code search.

Home buyers can purchase these homes with only 5% down. What’s more, buyers receiving a gift from an eligible gift source only need $500 of their own money.

Unlike a standard conventional loan, Fannie Mae HomePath loans don’t require mortgage insurance or an appraisal. Some of the properties may be in need of repair, but they provide a great opportunity, especially for first-time home buyers who have little to put down on a home.

A 5% down payment is all you need

Lenders have realized that it’s unrealistic to require a 20% down payment considering today’s home prices. That’s why many programs are available, even to those with less-than-perfect credit and little money saved.

And current interest rates make it even more affordable to buy a home. Contact a reputable lender to find out which of these programs might work best for you.

Check your eligibility to buy a house with less than 5% down. Start here (Sep 16th, 2024)

The post 5 Ways to Buy a Home with 5% Down or Less first appeared on My Mortgage Insider.

If your family will be helping, your lender will need to know in advance. The lender will need a “gift letter” from the donor to make sure your down payment help has no strings attached.

If you’re planning to buy a house but need help with the down payment, you could ask for down payment gift money.

Check your eligibility to use gift funds to buy a home. Start here (Sep 16th, 2024)

In this article:

• Gift funds can help first-time homebuyers get a home
• Using conventional loan gift funds
• FHA loan gift funds
• USDA loan and VA loan gift funds
• Who can give gifts?
• What gifts are unacceptable?
• Sample mortgage gift letter (pdf)
• Gift money documentation
• Alternatives to down payment gift funds
• What is a gift of equity?
• Qualifying for a loan
• Down payment gift funds FAQs
• Our recommended lenders for home loans

Gift funds can help first-time homebuyers get a home

It takes a lot of cash to make a down payment, even with today’s smaller down payment mortgages.

For example, let’s say you’re buying a $350,000 home, which is less than the current median home purchase price in the U.S. That translates into a dollar amount of:

• $10,500 to make a 3% minimum down payment on a conventional loan
• $12,250 to make an FHA loan’s 3.5% down payment
• $17,500 for a 5% down conventional loan

A down payment gift could help you reach this threshold sooner, and buying sooner often means paying less. As years pass, homes tend to get more expensive.

And, don’t forget about the closing costs which could double your upfront cash outlay. Gifted money can help with those costs, too.

How do down payment gifts work?

Down payment gifts seem simple enough: Family members — or friends, in some rare cases — give you money, and you use the money for your down payment, closing costs, or both.

But there are some rules to know about. Following your lender and loan program’s rules will help avoid delays in closing your loan.

Overall, the rules ensure you’re not required to repay the gifted funds. For example, does the donor expect to own part of your home in exchange for the gift? Will the owner want a lien on the property?

The best way to clear up these questions is with a down payment gift letter.

What is a down payment gift letter?

A gift letter, from the donor to the lender, includes the donor’s name, address, and phone number. It also includes the donor’s relationship to the borrower and the amount of the gift.

The letter should state that the gift is intended to help the borrower make a down payment and that the donor has no expectation of repayment.

If your donor isn’t sure how to write a gift letter, that’s OK. The loan officer usually provides a template gift letter for the borrower to provide to the donor. The donor then completes and signs the letter.

Or, you can download an Editable Gift Letter or view a PDF Gift Letter.

Is gift money taxed?

You won’t have to report a down payment gift as income on your tax return. The money won’t be taxed as income.

It’s not quite as simple for donors. The IRS allows each donor to give you up to $17,000, beginning in the 2023 tax year, without paying a gift tax. (In 2022, the maximum was $16,000.) Married couples can give $34,000 ($32,000 in 2022).

Also, donors have a lifetime cap on gift-tax-free donations. Beginning in 2023, that lifetime cap is $12.92 million.

Are there limits on gift amounts?

As long as you and your donor meet your lender’s guidelines, you could use gifted money to cover your entire down payment amount on a primary residence.

In the past, conventional loan gift funds were limited to a certain percentage of the purchase price. But now this happens with some investment property loans.

That said, each loan type does have its own unique requirements, so we’ll discuss those next.

Using conventional loan gift funds

Conventional loans, regulated by Fannie Mae and Freddie Mac, allow the borrower to apply financial gifts to the down payment, fees, and closing costs.

Borrowers usually do not need their own funds when receiving a gift if the gift covers the entire down payment and other loan costs. (In the past, borrowers needed 5% of their own funds.)

Now, according to Fannie Mae, the minimum 5% borrower contribution is only needed when:

• The gift amount is less than 20% of the purchase price, and the property is 2- or 4-unit or a second home
• If the loan amount is over $647,200

How much money can be gifted on a conventional loan?

To clarify, borrowers don’t need to bring their own funds when receiving a gift that covers the entire down payment and closing costs — unless the final loan amount is higher than the annual conforming loan limit. The current loan limit in most counties is $766,550 in 2024.

If the gift amount does not cover all upfront costs, borrowers need to prove they have the money to cover them, or they’ll need to receive a higher gift amount.

You may think it’s unlikely for someone to give away enough money to cover the entire down payment and closing costs. But, it happens more than you might think. Gifted money has allowed many homebuyers to achieve homeownership much earlier than they would have on their own.

Who can give gift funds on a conventional loan?

Not just anybody can help you make the down payment on your home. Gifts from the following sources are acceptable:

• Spouses, fiances, or domestic partners
• Children or other dependents
• Other relatives by blood, marriage, adoption, or legal guardianship

Interested parties, such as real estate agents or the home’s seller, cannot donate to the cause.

However, the home’s seller could help, indirectly, through seller concessions, up to 3% of the purchase price if you’re putting less than 10% down.

Technically, seller concessions can go only toward your closing costs. But, in reality, getting help with closing costs could free up more of your own money for your down payment.

What documentation is required when a gift is being used on a conventional loan?

Lenders will need to track the source of your down payment funds. Along with asking for a gift letter, expect your loan officer to check one or more of the following:

• Your bank statements before and after the gift is deposited
• Your donor’s bank statements before and after the gift is deposited
• Deposit slips showing when you deposited the donor’s check
• Withdrawal slip showing the money leaving the donor’s account
• A copy of the deposited donation check
• Proof of a wire transfer between banks

It’s okay if you don’t have access to all of these documents. Obviously, if you received funds via wire transfer you won’t have a check to show.

Basically, the lender needs to trace the money from the donor’s bank account to your bank account. Keep in mind, the amount of the transfer must match what’s stated in the gift letter.

FHA loan gift funds

The typical FHA borrower makes a 3.5% down payment on a home. This means that if the purchase price is $300,000, the borrower needs to come up with $10,500. The FHA calls this down payment the borrower’s required “minimum investment.”

The minimum investment is the FHA’s way of making sure the homebuyer has “skin in the game” which lowers the risk of foreclosure.

But there’s one exception to the minimum investment rule: The minimum investment can come from a cash gift. Borrowers do not need to contribute any of their own funds if receiving a gift for the full 3.5% down payment.

USDA and VA loan gift funds

Using gifts on USDA and VA loans is less common because these loans do not require a down payment.

However, borrowers may still need help buying a new home with these loans, and gifted money can provide that help. For instance, if the new home’s appraised value is lower than the purchase price, the buyer will need cash to make up the difference. (Lenders won’t underwrite more than the appraised value of the home.)

Also, USDA loan and VA loan borrowers can use gifted money for closing costs.

U.S. Department of Agriculture Rural Development (USDA Guaranteed loans) allow gift funds to cover any down payment required or closing costs not already covered by the seller.

Likewise, The Veterans Administration (VA) allows gifts. For both of these programs, follow the same donor guidelines and documentation procedures as for conventional loans.

Check your mortgage rates. Start here (Sep 16th, 2024)

Who can give down payment gifts?

Typically, donors of financial gifts toward purchasing a house need to be relatives.

According to Fannie Mae’s underwriting guide, the gift giver can be “a relative, defined as the borrower’s spouse, child, or another dependent, or by any other individual who is related to the borrower by blood, marriage, adoption, or legal guardianship.”

In addition, a fiancé or domestic partner can be the source of funds.

FHA expands the rules a bit, allowing an employer, labor union, charitable organization or government agency to contribute. There’s even a provision for a close friend to give a gift, provided a documented, long-term relationship was in existence prior to the real estate transaction.

An example would be a high school yearbook, a family photo album, or proof of being roommates in college. This is the kind of real-life documentation the underwriter might ask for when receiving gifted funds from a friend.

What gifts are unacceptable?

Whether you qualify for FHA or conventional financing, lenders ultimately want to know one thing: Is the money from a legitimate gift?

Lenders worry about illegitimate gifts because they could put the loan itself in jeopardy. The point of mortgage underwriting is to make sure you’re willing and able to make the new home’s mortgage payments.

If a down payment gift were really a loan, repaying the loan could make it more difficult to pay the actual mortgage payments.

Gifts can’t come from anyone who would benefit from the sale of the home – the seller, agents, loan officer, etc. – even if any of those individuals are related to the buyer.

Any sums of money received from anyone involved in the transaction are subject to the limits of “interested party contributions” as designated by the loan program. These funds could not be used for the down payment but only for closing costs.

For instance, FHA allows a maximum of 6% of the sales price in interested party contributions. These funds can only be applied to closing costs. Conventional financing allows:

• 3% contribution with a down payment of less than 10%.
• 6% contribution with a down payment between 10% – 25%
• 9% interested contribution for closing costs for down payments over 25%

Again, these funds can only be applied to closing costs, not the down payment.

Documenting the source of gifted mortgage funds

Another piece of documentation is the source of the funds. “Sourcing” funds, as it’s called within the mortgage industry, means showing proof of where the money came from. When dealing with gift funds, “sourcing” gift funds means providing a bank statement showing that the donor does in fact have enough money to give.

This is where things can get a bit sticky. Often, the mortgage lender requires the donor to hand over a full copy of his or her bank statements, showing all transactions and personal information.

Many donors don’t exactly enjoy handing over personal information for a loan that’s not even theirs. Anyone receiving a gift should let the donor know upfront about this requirement.

Check your eligibility to use gift funds to buy a home. Start here (Sep 16th, 2024)

More about gift money documentation

Next, a “paper trail” needs to be established. A paper trail is a set of documents that follow the money. The paper trail would include:

• A bank statement showing the gift money came out of the donor’s account
• A withdrawal receipt from the donor
• A deposit receipt from the receiver
• A statement from the receiver’s bank showing the money is now credited to his or her account

Then the receiver will have to show proof of the gift money coming out and a receipt from escrow showing the funds were received.

Some steps can be cut out if the donor wires the gift money directly to the escrow company handling the transaction. In that case, all that would be needed is the donor’s bank statement and a receipt from escrow.

Likewise, if gift funds were received a long time ago, documenting it may not be necessary. The mortgage lender considers the funds yours if you can show bank statements that do not show the initial deposit.

The gift money would then be considered “seasoned,” which means they have been in your possession long enough to be considered yours.

Alternatives to down payment gift funds

Not everyone has relatives who can donate tens of thousands of dollars for a down payment. That’s fine. You can still find help through down payment assistance programs.

Down payment assistance programs often help first-time home buyers through grants or loans. Many of the loans are forgivable if you stay in the home long enough.

There’s no single source for down payment assistance. Instead, programs are local. Check with your city or county government or Google “down payment assistance” to find local programs. Some of these programs have income limits; others require first-time buyers to complete a homeowners education course.

As with down payment gifts, tell your lender and real estate agent as soon as possible if you’ll be using down payment assistance.

What is a gift of equity?

Conventional loans allow for a gift type called a “gift of equity.” This could help if you’re buying a home from a family member. Basically, the seller charges you less than the home’s appraised value. The difference between the home’s value and what you pay serves as a gifted down payment.

For this to work, the current owner must still be an eligible donor, per conventional loan gift guidelines, and must own and have equity in a piece of property.

Here’s an example: Your parents own a second home worth $300,000 but have agreed to sell it to you for $240,000. The $60,000 price difference becomes your 20% down payment.

The paperwork would still show a home purchase price of $300,000, even though you’d borrow only $240,000.

As far as the paper trail, the lender will accept the final settlement statement, also called the final HUD-1. The final HUD-1 statement is provided by the escrow company and displays each fee that’s related to the property sale transaction.

The HUD-1 will show the gift by showing an item stating “Gift of Equity – $60,000,” or something to that effect. This is proof that the intangible equity has been transferred from the seller to the buyer.

The gift of equity may appear to fall within the definition of an interested party contribution since it’s the seller who is giving the gift. However, Fannie Mae and Freddie Mac make this situation exempt from interested party contribution rules when the buyer and seller have an eligible relationship.

Click here to check your home buying eligibility. Start here (Sep 16th, 2024)

Gifted money helps, but you still have to qualify

Receiving gifts can push you over one of the biggest home buying hurdles, but the down payment is only one piece of the puzzle.
You’ll also need to meet your lender’s:

• Credit score requirement: For conventional loans, the minimum is often 620. FHA lenders can go as low as 580 with a 3.5% down payment
• DTI limits: This stands for debt-to-income ratio. DTI compares your monthly income to your mortgage payment and other debts. Conventional lenders look for DTIs in the 36% to 43% range; FHA lenders can go higher, possibly up to 50% in some cases
• Income documentation rules: Lenders will want to see pay stubs, W2 forms, bank accounts, or tax returns. This proves you earn a steady and reliable income

The good news is that down payment gifts can help you overcome other qualifying challenges. For example, if your DTI is pushing your lender’s limits, a bigger down payment can lower your mortgage payment which, in turn, lowers your DTI.

Before you apply for a loan, use a mortgage calculator to see loan payments for different loan sizes and down payment amounts.

Mortgage loan gift funds FAQs

What are gift funds?

When family members donate money toward your down payment or closing costs, lenders call this money “gift funds” or “gifted funds.” Most types of loans allow gift funds now.

Are gift funds for a mortgage taxable?

For the home buyer, gift funds are not taxable. For the donor, gifts are subject to the IRS’s gift tax if the gift exceeds $17,000 in the 2023 tax year.

Who can give gift funds on a conventional loan?

Family members can contribute toward your down payment. This includes grandparents, parents, children, spouses, domestic partners, fiances, blood-related aunts, and uncles.

Are gift funds allowed on conventional loans?

Yes. In fact, if you’re buying a single-family home to use as a primary residence, gift funds can cover all of your down payment and closing costs.

Can a friend give gift funds for an FHA mortgage?

In some cases, friends can give gift funds for an FHA loan down payment. The lender will need proof that you have a long-term friendship with the donor. A high school or college yearbook could provide this proof.

Can you use gift funds toward a second home?

Yes. But if you’re putting less than 20% down on the second home, you’ll need to provide at least 5% of the down payment yourself.

Can gift funds be repaid?

For a loan originator to accept gifted funds, the donor has to give the money with no strings attached. There can be no expectation of repayment.

What happens if you pay back a down payment gift?

If your gifted money is actually a loan in disguise, you’d be committing mortgage fraud. It’s fraud because you would have misled the lender for the purposes of qualifying for the loan. However, if you wanted to return the gift later after you’d paid off or refinanced the mortgage, that would be between you and the donor.

Receiving gift funds is well worth the effort

Documenting down payment gifts can be complicated, but the process can be well worth it. For many first-time home buyers, gifts can mean the difference between buying a home now or buying a home years from now.

Receiving a gift reduces the amount of savings needed to close the purchase, and gifts also lower the payment on the future mortgage loan.

With a little education and a willing donor, receiving a gift to be applied toward the down payment on a house can turn out to be a sweet deal for a first-time home buyer.

Check your eligibility to use gift funds to buy a home. Start here (Sep 16th, 2024)

The post Down Payment Gift Money for First-Time & Repeat Home Buyers first appeared on My Mortgage Insider.

Although most people assume they need a 20% down payment to buy a home, there are low down payment conventional loans available, including the Conventional 97 loan program which allows qualifying borrowers to get a conventional loan with as little as 3 percent down.

In fact, this low down payment program can be a competitive option for homebuyers with limited down payment funds who are otherwise considering an FHA loan.

Check your conventional mortgage rates. Start here (Sep 16th, 2024)

Low down payment home loans: Conventional 97 & FHA loans

Choosing between a conventional mortgage or a loan backed by a government program like the Federal Housing Administration (better known as FHA) may seem a little ambiguous and confusing.

The FHA offers 3.5 percent down payment mortgage loans. That sounds great especially if you don’t have a lot of money to spend upfront on home buying. But conventional loan programs now allow qualifying borrowers to put just 3 percent down for a mortgage.

With so many loan options, how do you choose the right type of mortgage for your financial situation?

“It’s all about who you are talking to,” says Susan Stevenson, president of the Ohio Mortgage Bankers Association. “You really have to educate yourself on the different loans and get options. As a loan officer, I could take the same options and make them look different than someone else. There are a lot of variables in mortgages, and plus it also depends on what kind of house you buy and where you buy it.”

Check your eligibility for a low down payment loan. Start here (Sep 16th, 2024)

Is a low down payment conventional mortgage better than FHA?

FHA loans are backed by the federal government and issued by participating lenders.

When you get a conventional loan, there are no such governmental guarantees. That means the full risk of your potential default on the loan is assumed by the lending bank or loan company — rather than shared by a government agency.

Combined with the smaller down payment requirements, the mortgage lender’s exposure is simply higher on these low-down payment conventional loans. So they don’t issue them to just anyone.

That means the underwriting guidelines are tougher. To qualify, borrowers will need a pretty good credit score, a lower loan-to-value ratio, good income, and future income, and a nearly unblemished credit history.

If you plan on getting one of those 3 percent down payment conventional loans offered by Fannie Mae or Freddie Mac, you need at least a 680-700 credit score, and you need to pay your bills on time, Stevenson says.

“It’s a great program. If you are approved, you can get your down payment through gift money, too,” she says. “The guidelines have been tweaked. It used to be that if you were putting down 5 percent on a conventional loan, that 5 percent had to come from you.”

Stevenson works with all kinds of borrowers who have everything from more than 20 percent down to those who have nothing to put toward a down payment. Believe it or not, there are loans for those who have saved zero dollars. Plus, there are lots of down payment assistance programs to help people across the country to become homeowners.

Check your conventional mortgage rates. Start here (Sep 16th, 2024)

Other low-down payment programs

USDA and VA loans require no down payments, but you have to be eligible for them. To qualify for a USDA loan (backed by the U.S. Department of Agriculture), you must buy a home in a designated rural or suburban area and have a low to moderate income for the area. And of course, to receive a VA loan (backed by the Department of Veterans Affairs), you have to be a current or retired military person or spouse.

It’s worth noting that these programs are intended to help borrowers finance a primary residence. They’re meant to make homeownership more accessible so it’s unlikely you’ll be able to buy a second home with no money down.

Typical conventional mortgage down payment amount

“Conventional loans are very popular still. Older people usually have 20 percent down because they are downsizing or upsizing, and they are selling a house. They put that money towards a new place,” Stevenson says.

But she usually sees the majority of people putting down between five and 10 percent of the loan amount. With a down payment of at least 5%, conventional loan rates drop compared to the 3% down payment option.

Minimum down payment requirements for jumbo loans

Jumbo loan down payments are typically at least 10 percent of the loan amount but some lenders are likely to require a down payment of as much as 30 percent.

Because these loans are non-conforming (meaning the lender can’t sell them to Fannie Mae or Freddie Mac), the lender is already assuming additional risk by offering a loan above conforming loan limits. As a result, it’s unlikely they’ll be willing to take on the added risk of a loan down payment.

FHA vs conventional mortgage payment showdown

For many people without 5% down, who only have money for a small down payment, the dilemma is whether to get a conventional loan or an FHA loan.

Both loans require mortgage insurance. Conventional loan borrowers making a down payment of less than 20 percent will need to get Private Mortgage Insurance (PMI). The good news is that once you reach a loan-to-value ratio of at least 78 percent, you can cancel the insurance.

The bad news with an FHA loan is you’re stuck paying PMI over the life of the loan unless you refinance.

Here’s an example of how close monthly mortgage payments can be, comparing an FHA 3.5 percent down payment loan with a conventional 3 percent down payment loan:

Stevenson says that if someone is buying a $200,000 home with a conventional loan and a 3 percent down payment, the interest rate might be about 4.62 percent – which is a higher interest rate than the 3.5 percent an equivalent borrower might get on an FHA loan. But remember, all of this really hinges on your credit score — with a higher credit score, you get a lower interest rate.

Fannie Mae charges points — also known as extra fees — to do their 97 percent loans. Typically borrowers pay those fees by accepting a higher rate rather than paying out of pocket. So the rate ends up quite a bit higher than that of the FHA option.

The monthly mortgage insurance premiums or PMI for the conventional loan will be $151 a month.

With an FHA loan on the same $200,000 house, PMI will be a little lower ($137 a month) than with the conventional loan. Before taxes, you would pay $1,148.43 for the conventional loan each month. The FHA would be a little less at $1,018.82. The upfront mortgage insurance for FHA is rolled back into the loan and the monthly mortgage cost is reduced, she says.

But remember that once you hit that 78% loan-to-value point (in other words, once you have 22% home equity), that $151 monthly PMI payment goes away on the conventional loan.

Viewed side by side, here’s what each loan would look like, before taxes, home insurance, and HOA dues:

• 3% down conventional: $1,148 per month
• FHA: $1,018 per month

After 22% equity attained

• 3% down conventional: $997 per month
• FHA: $991 per month (FHA mortgage insurance decreases based on current principal owed)

“Every scenario is going to be different. But those with lower credit scores probably would head toward a FHA loan,” Stevenson says. “If you have a 750 credit score and have 3 to 5 percent down, you most likely would go with a conventional loan.”

And with a conventional loan, you can put down as much as you can afford, which will help lower your monthly payments. But remember not to leave yourself without any money for emergencies such as a busted water heater or broken window. Stuff happens, and you need a fund set aside for such purchases and repairs.

Check your FHA eligibility. Start here (Sep 16th, 2024)

FHA and conventional 97 rate quotes available

It’s hard to tell if an FHA or conventional loan is the best mortgage option for your home purchase just by reading an article. To help you determine which type of loan is best for your financial situation, you can receive live quotes from real lenders now.

Check your mortgage rates. Start here (Sep 16th, 2024)

The post Conventional Mortgage Down Payment Requirements 2024 first appeared on My Mortgage Insider.

A conventional refinance is one of the most versatile loans in today’s market.

Conventional refinances can convert any type of mortgage loan into a conventional loan. Simultaneously, a conventional refi could also cash out equity.

In many areas, home prices increased over the past few years. As a result, many homeowners are eligible for a conventional refinance and could even cancel PMI to further lower their costs.

Check your eligibility for a conventional refinance. Start here (Sep 16th, 2024)

In this article:

What is a conventional refinance?
What can a conventional refinance be used for?
Conventional refinance requirements 2022
Refinancing an FHA loan into a conventional loan
Getting rid of mortgage insurance with a conventional refi
Conventional refinance rates
Conventional loan limits
Conventional refinance loan lengths
Are adjustable-rate refinances available?
Do conventional refinances require closing costs?
Conventional refinance FAQ
Our recommended refinance lenders

What is a conventional refinance?

Conventional refinances are conventional loans that replace an existing mortgage loan. The refinance replaces the old loan by paying it off. Then, the homeowner starts making payments on the refinance loan instead of the original loan.

Check your eligibility for a conventional refinance. Start here (Sep 16th, 2024)

The new loan should benefit the borrower in some way: a lower interest rate, a shorter loan term, a fixed-rate loan, or cash back from equity, for example.

Like conventional loans, a conventional refinance is not insured by a federal agency. So borrowers rely more on their credit score and debt-to-income ratio to qualify.

The most qualified borrowers get the best deal on conventional refinance loans.

What can a conventional refinance be used for?

Conventional refinances can help you meet a variety of goals:

• Refinancing a primary residence, second home, or investment property
• Turning home equity into cash at closing
• Eliminating private mortgage insurance (PMI)
• Canceling FHA mortgage insurance
• Refinancing out of any other loan type
• Reimbursing a cash home purchase
• Shortening the home loan term

Check your eligibility for a conventional refinance. Start here (Sep 16th, 2024)

Ideally, a conventional mortgage refinance will achieve two or more of these goals at once.

For example, a conventional refi could replace an existing FHA loan, eliminating the FHA’s mortgage insurance premium, while also generating cash back at closing and shortening the loan term.

But meeting at least one goal is good enough for most borrowers.

Conventional refinance requirements 2024

Qualifying for a rate-and-term conventional refinance will resemble qualifying for a conventional purchase loan. Rate-and-term loans simply replace an existing mortgage with a new loan.

Check your eligibility for a conventional refinance. Start here (Sep 16th, 2024)

To be eligible for a conventional refinance, you’ll need to have sufficient loan-to value (LTV). Many conventional programs will allow you to refinance if you have at least 5% equity — though if you have an LTV of 20% or more then refinancing could also enable you to eliminate any private mortgage insurance (PMI) you might be paying.

Along with meeting LTV, you’ll need to have a FICO score of 620 with most lenders and a debt-to-income ratio below 43%. You’ll also need to document your income by sharing a W2, pay stub, or tax returns.

Conventional cash-out refinance requirements

A conventional cash-out refinance allows you to borrow against your home equity, generating “cash back” which you could use for debt consolidation, home improvements, or any other purpose.

A cash-out refi can’t access all of a home’s equity. Borrowers have to follow the 80% LTV rule which requires leaving 20% of the equity untouched.

Check your eligibility for a conventional cash-out refinance. Start here (Sep 16th, 2024)

So if you owned a home worth $250,000, your maximum loan size would be $200,000.

If you’ve paid down your existing mortgage to a balance of $150,000, a $200,000 loan would be large enough to pay off your existing loan while also paying you up to $50,000 at closing.

But if your current loan balance was $200,000, you wouldn’t have enough equity to get cash back, even though you have $50,000, or 20%, in equity. That 20% equity has to stay in the home.

Many lenders require higher credit scores for cash-out refinance options. Some look for 660 or 640 scores instead of only 620. Interest rates also tend to be a little higher for cash-out refinances compared to rate-and-term refinances.

Refinancing an FHA loan into a conventional loan

First-time home buyers — and other buyers with lower down payments and average credit scores — might need an FHA loan to buy a home.

Check your eligibility for a conventional refinance. Start here (Sep 16th, 2024)

But FHA borrowers pay FHA insurance. This FHA mortgage insurance premium (MIP) adds 1.75% of the loan amount upfront. Then, most borrowers pay another 0.85% of the loan’s amount each year in MIP.

Refinancing to a conventional loan can enable FHA borrowers to eliminate mortgage insurance premiums.

Conventional refinances eliminate FHA MIP

For most current FHA loan holders, the best way to stop paying MIP is to refinance their FHA loan into a conventional loan, exiting the FHA loan program altogether.

Check your eligibility to eliminate FHA MIP. Start here (Sep 16th, 2024)

As long as the FHA homeowner has at least 20% equity — and can meet a conventional lender’s credit and debt-to-income ratio rules — the new conventional refi won’t need any mortgage insurance.

Of course, the homeowner should make sure the new loan will actually save money compared to the existing FHA loan. A borrower who barely qualifies for a conventional loan may not see much, if any, savings. In fact, a refinance might cost more.

To find out for sure, get a mortgage preapproval from a few different lenders. Preapprovals show your monthly mortgage payments and long-term costs.

Getting rid of mortgage insurance with a conventional refi

Conventional loans charge monthly mortgage insurance, too. When home buyers make down payments less than 20%, lenders require private mortgage insurance, or PMI.

Verify your eligibility for a conventional refinance. Start here (Sep 16th, 2024)

PMI rates vary by borrower. They usually range from 0.5% to 1.5% of the loan amount per year. For a $250,000 loan, a 1% PMI rate would cost $2,500 a year, or about $208 a month.

The good news is that you won’t have to refinance out of this extra cost. Once your loan balance falls to 80% of your home value, you can cancel PMI and stop paying for it.

Federal law requires your lender to cancel PMI once your loan balance falls to 78% LTV. If you think you’ve already met this requirement but your lender disagrees, check with your loan servicer about getting a new home appraisal.

Can I refinance out of PMI?

Conventional borrowers who want to get rid of PMI sooner by refinancing have a couple of loan options:

• Refinancing into loans that don’t require PMI: Some lenders offer private, in-house loan programs that don’t charge PMI. But these loans usually charge higher interest rates. So the savings might be minimal or nonexistent.
• Cash-in refinancing: Bringing cash to closing could drop a home’s LTV low enough to eliminate PMI. But there are closing costs to pay, and they cut into the savings. Plus, you might have to part with a lot of cash.

Most conventional loan holders will find it’s best to wait. When they’ve paid their loan down to 80% LTV, they can cancel PMI without paying closing costs or higher rates.

Conventional loan refinance rates

Almost every refinance shopper will get a different rate based on their financial situation.

For instance, a customer refinancing a rental property will get a rate that’s up to 0.5% higher than someone who is refinancing a single-family primary residence.

Check your eligibility for a conventional refinance. Start here (Sep 16th, 2024)

Likewise, someone with a 660 score will pay about 0.25% more than a customer with a 700 score.

In short, conventional loan refinance rates are based on risk to the lender.

Unlike federally insured loans, which insulate borrowers from the effects of this risk, you’ll get the best conventional refinance rate by being a low-risk borrower.

Lower-risk borrowers can refinance into rates that are below today’s average mortgage rates. And since a refi with 80% LTV requires no private mortgage insurance, a conventional refi’s APR will be lower, too.

Connect with a lender to start your conventional refinance application (Sep 16th, 2024)

2024 conventional loan limits

The standard conventional loan limit is $766,550. A qualifying refinance applicant can open a loan for at least this amount anywhere in the country.

But Fannie Mae and Freddie Mac allow higher limits in some areas where real estate costs more.

Check your eligibility for a conventional refinance. Start here (Sep 16th, 2024)

For instance, San Diego has a conventional loan limit of $1,149,825. Refinance consumers in Seattle and Queens, New York, can also be approved for a higher conventional loan.

The highest limit in the country is available in Honolulu, Hawaii, which is even higher than the limit in San Diego.

Homeowners in areas with high housing costs should check their conventional loan limit before they assume they need a jumbo loan.

Homeowners who refinance multi-unit homes have access to higher loan limits:

• The conventional loan limit for a 1-unit home: $766,550
• The conventional loan limit for a 2-unit home: $981,500
• The conventional loan limit for a 3-unit home: $1,186,350
• The conventional loan limit for a 4-unit home: $1,474,400

Homeowners with multi-unit homes that are also in high-cost areas can receive conventional loans of over $1.2 million.

Keep in mind that these are loan limits, not home price limits. Someone refinancing a $2 million home could receive a conventional loan of $766,550 in any area of the country.

What conventional refinance loan lengths are available?

The most popular conventional refinance loan terms are 15 and 30 years.

A 15-year fixed-rate mortgage will require higher monthly mortgage payments compared to a 30-year fixed loan. But long-term interest charges will be lower with a 15-year term.

Check your eligibility for a conventional refinance. Start here (Sep 16th, 2024)

Borrowers can also find 10- and 20-year mortgages, though they are less common. Some lenders will customize a conventional refinance’s term.

In general, longer terms make for lower payments but more interest.

Check your mortgage rates. Get started here

Are adjustable-rate mortgages available?

Yes, borrowers can refinance into an adjustable-rate mortgage (ARM). These loans have fixed rates for the first three, five, seven, or 10 years.

Check your eligibility for a conventional refinance. Start here (Sep 16th, 2024)

During this initial fixed period, the rate is typically lower than the rate you could get on a 30-year fixed-rate loan. After the intro rate expires, rates and payments can change each year.

ARMs are great for homeowners who plan to move, refinance again, or pay off their mortgage in a few years.

Do conventional refinances require closing costs?

Just like home purchase loans, refinance loans charge closing costs. These costs include loan origination fees and legal fees. Closing costs could also include a home appraisal fee and prorated property taxes and homeowners insurance premiums.

Check your eligibility for a conventional refinance. Start here (Sep 16th, 2024)

Closing costs usually range from 2% to 5% of the loan amount. That’s $2,000 to $5,000 for every $100,000 borrowed.

Some lenders advertise no-closing-cost loans. These loans normally charge higher interest rates which reimburse the lender for your closing costs.

How do I get a conventional cash-out refinance?

A cash-out refinance pays the borrower cash at closing. The cash out is borrowed from the home’s equity and must be repaid as part of the new loan’s monthly mortgage payments.

Here’s how it works: If a homeowner owes $100,000 on a home that’s worth $200,000, the homeowner can apply for a loan amount bigger than what they owe. The difference between the two loans goes to the homeowner.

Most lenders can approve a cash-out loan up to 80% loan-to-value ratio. So a homeowner who has 30% equity can take up to 10% of the home’s value in cash with a cash-out refinance.

Cash-out refinance rates are slightly higher than no-cash-out loans. The difference is usually about 0.125% — or about $10 more per month in interest for every $100,000 borrowed.

Considering the relatively low cost, a cash-out loan can be a great way to consolidate high-interest debt and get monthly expenses under control. For many households with a lot of debt from student loans, credit cards, and car loans, a cash-out loan may reduce payments by many hundreds of dollars per month.

Check your cash-out refinance rates. Start here (Sep 16th, 2024)

Conventional refinance FAQ

Do I need to have a conventional loan to do a conventional refinance?

No. You can refinance any type of loan with a conventional loan. You can refinance FHA loans, USDA mortgages, Alt-A loans, subprime loans, option ARMs, and adjustable-rate mortgages.

My appraisal shows a lower value than expected. Can I still refinance with a conventional loan?

Possibly, but the refinance may require monthly mortgage insurance. It’s best to have 20% equity in your home before refinancing with a conventional loan.

I’m not sure about my credit. Should I apply for an FHA loan first?

You don’t have to pick one loan program when applying for a new loan. Your loan officer will look at your entire situation and try for the lowest-cost option. If a conventional loan doesn’t work out, the lender may switch you to an FHA loan. Don’t automatically rule out a conventional loan just because of your credit standing.

Can I refinance from an FHA to a conventional loan?

Yes. If you have sufficient equity and a credit score of 620 or higher, you can likely refinance to a conventional loan.

Why get a conventional loan? Why not refinance with FHA?

FHA can be used to refinance, but it’s typically for homeowners who can’t qualify for a conventional refinance due to past credit issues. Because of its flexibility, an FHA refinance is more expensive. Homeowners who don’t need the FHA’s flexibility can save money with conventional refinancing.

How do I apply for a conventional loan refinance?

Applying for a conventional refinance is just like applying for any other refinance.

Start by checking rates here. The lender will guide you through the rest of the process.

What is a conventional refinance?

A conventional refinance is a new conventional loan that replaces an existing mortgage on a house you’ve already bought. Unlike an FHA Streamline Refinance, which can be used only if you already have an FHA loan, a conventional refinance can replace any other mortgage type.

Can you refinance a conventional loan?

Yes, homeowners can refinance their conventional loans. Refinance loans are worth the time and money when they achieve a goal such as lowering your mortgage rate or monthly payments.

How soon can I refinance an FHA loan to a conventional loan?

FHA borrowers can refinance into conventional loans as soon as they have 20% equity in their home and a credit score of at least 620. Conventional lenders usually look for debt-to-income ratios of 43% or lower. These standards are stricter than FHA loan requirements.

How soon can you refinance a conventional loan?

There’s no waiting period for refinancing a conventional loan. However, it’s often best to wait until you have 20% equity in the home. If you made a 20% down payment, you should already have 20% equity.

Can you refinance an FHA loan to a conventional loan?

Yes, conventional refinances can replace loans of any type, including FHA, USDA, and VA loans.

Is a conventional refinance better than an FHA Streamline Refinance?

Not necessarily. But FHA Streamline Refinances work only for current FHA loan holders. They’re a great way to save money without going through the full credit underwriting process. Unless you have an FHA loan now, you couldn’t get an FHA Streamline Refi.

Can I get a conventional adjustable-rate refinance?

Yes, and these loans are becoming more popular as mortgage rates have bounced back from the historic lows of the pandemic. ARMs are more popular because they start out with a lower-than-average mortgage rate. Later, the rate will fluctuate with the market.

How much equity do I need to refinance to a conventional loan?

It’s possible to refinance a conventional loan with as little as 3% home equity. However, it may be best to aim for 20% equity before a conventional refinance. This would help you qualify for a lower mortgage interest rate and cancel private mortgage insurance, further reducing your monthly payments.

How do you qualify for a conventional refinance?

Conventional borrowers typically need FICO credit scores of at least 620, a debt-to-income n caratio no higher than 43%, and at least 20% in home equity. If you meet these requirements, shop around with at least three mortgage lenders so you can compare rates.

What does ‘conventional’ mean?

Conventional mortgages are home loans that are regulated by Fannie Mae and Freddie Mac. These two companies buy most conventional loans from lenders. Since they control the mortgage market, they make the rules for what qualifies as a conventional loan — also known as a conforming loan. Most home buyers use conforming loans.

Get started on your conventional refinance now

Not sure where to start with your conventional refinance?

A mortgage preapproval is a great place to begin. The preapproval process requires a soft credit check which won’t hurt your score.

It’ll show what rates you qualify for and how much you could save.

Connect with a lender to start your conventional refinance application (Sep 16th, 2024)

The post Conventional Refinance | Rates, 2024 Loan Limits & Guidelines first appeared on My Mortgage Insider.

A piggyback loan is a way to save money by using two mortgage loans, instead of one loan, to buy a house.

Why use a second loan when one is all you really need? Because the second mortgage covers part of the down payment for the first mortgage, meaning you can reap the benefits that come with making a larger down payment.

By increasing the down payment amount, the borrower can save money. For example, paying 20% down eliminates the need for private mortgage insurance premiums.

How do piggyback loans work?

Piggyback loans are also called 80/10/10 loans, and if you’re wondering how these loans work, all you have to do is follow the numbers:

• 80: Represents the first mortgage, which finances 80% of the home’s purchase price.
• 10: Represents the second mortgage, which finances another 10% of the home’s price. This 10% counts toward the buyer’s down payment.
• 10: Represents the cash down payment provided by the buyer.

With this scenario, a buyer can benefit from a 20% down payment while paying only 10% down out of their own pocket.

There are other types of piggyback mortgages besides 80/10/10s, such as an 80/5/15, and 75/15/10. The second number always describes the second mortgage, and the third number describes the buyer’s cash down payment.

The second loan is often a home equity line of credit (HELOC), or home equity loan.

Are 80/10/10 loans available?

Many mortgage lenders offer piggyback financing in 2024.

Lenders have always offered the first mortgage — the 80% portion of the home’s purchase price. In the past, it was harder to find a lender for the 10% second mortgage.

Due to the popularity of the program, many lenders have created their own second mortgage program. Some lenders have also built relationships with other lenders to secure second mortgage financing for the home buyer — making it one seamless transaction as far as the buyer is concerned.

How do piggyback loans eliminate PMI?

Normally, private mortgage insurance, or PMI, is required when borrowers pay less than 20% down on a conventional loan.

With a piggyback loan, however, borrowers can put only 10% down but still get credit for a 20% down payment. The second mortgage provides the other 10% of the 20% down payment amount.

Why get two loans just to avoid PMI? Because PMI costs borrowers money, and the premiums protect the lender — not the borrower.

The PMI price tag varies by borrower. Annual premiums usually range from 0.5% to 1.5% of the primary mortgage amount each year. On a $300,000 first mortgage, 1% would equal $3,000 a year or $250 a month.

Other benefits of a piggyback mortgage loan

Eliminating PMI isn’t the only reason buyers like piggyback loans. This financing strategy can also:

• Help lower interest rates: A bigger down payment lowers the primary mortgage’s loan-to-value ratio (LTV), and a lower LTV will often help buyers dodge higher interest rates
• Keep loan within limits: Freddie Mac and Fannie Mae set conforming loan limits each year. A bigger down payment could keep your loan amount within this year’s limit, avoiding a non-conforming jumbo loan
• Save cash for closing costs: Even if you could afford a 20% cash down payment, parting with only 10% can leave room in the budget for closing costs, moving expenses, or new furniture
• Help you buy a new home while selling your old one: Some buyers pay off their piggyback’s second mortgage quickly — after selling another home, for example. They use piggybacking so they can buy with 20% down before selling their other home

A lot of interrelated factors will affect your home-buying budget. By increasing your down payment, piggyback loans can move more of these factors in your favor.

Types of piggyback loans

80/10/10 loans are the most common type of piggyback loan, but they aren’t the only type. Buyers can also find:

• 80/15/5 piggyback loans: This version shifts more of the financing burden onto the second loan, allowing buyers to bring only 5% to the closing table
• 75/15/10 piggyback loans: This piggyback loan increases the second mortgage by 5% so the buyer can put 25% down on the primary mortgage

As you can see by the numbers, these variations divide the home’s cost between the two mortgages differently. Otherwise, they work like any other piggyback loan: A second mortgage helps cover the down payment on the first mortgage.

80/10/10 vs 75/15/10

A piggyback loan’s variations aren’t random. There’s usually a reason behind the size of each loan.

For example, some homes — such as condominiums — may need a 25% down payment instead of 20% down. In that case, a 75/15/10 piggyback would be the way to go. This scenario could help with some investment property down payments, too.

For most single-family home buyers, an 80/10/10 piggyback offers just enough down payment support.

How to qualify for a piggyback loan

Compared to conventional loans with all-cash down payments, piggyback financing will require a higher credit score. That’s because you have to qualify for a second mortgage (a home equity loan or HELOC) on top of your primary mortgage.

Many lenders look for scores of 680 or higher for a second mortgage. That’s 60 points higher than the typical 620 score needed for a conventional loan.

Another qualifying factor for piggyback financing is debt-to-income ratio, or DTI. The payment amount for both loans — the primary mortgage and the second mortgage — will be factored into your DTI. DTI also includes your credit card minimum payments, auto loans, and student loan payments.

All these monthly debts, including your two house payments, can’t exceed 43% of your monthly gross income for most lenders.

Alternatives to a piggyback loan

If a piggyback loan’s credit score and DTI requirements won’t work for you, consider one of these alternatives:

• 10% down conventional loan: Buyers don’t need 20% down to get a conventional loan. Even with 10% down, you could get a competitive interest rate. You’d pay PMI but only until you’ve paid the loan down to 80% of the home’s value
• FHA loan with 10% down: FHA loans let buyers with average credit and lower down payments access lower interest rates. With 10% down, you can stop paying the FHA’s mortgage insurance premiums (MIP) in 11 years

Some buyers can also get USDA loans or VA loans which require no money down, but not everyone is eligible. USDA loans have income and geographical limits; VA loans are reserved for military service members.

Is an 80/10/10 less expensive than an FHA loan?

The minimum down payment for an FHA mortgage is just 3.5%. However, buyers can make a bigger down payment if they wish, and a 10% down payment on an FHA loan can save money in the long run.

If you have 10% to put down, should you use an FHA loan instead of piggybacking?

Before deciding, consider the FHA’s mortgage insurance premium (MIP), which charges 0.8% of the loan amount each year on a 10% down loan. For a $350,000 home, that’s $210 per month.

The MIP is required for the first 11 years of the loan with a down payment of 10%. With a smaller down payment, MIP is required for the life of the loan.

In addition to this monthly mortgage insurance cost, FHA charges a one-time upfront mortgage insurance premium of 1.75% of the loan amount. These closing costs can add up and make a piggyback mortgage cheaper than FHA.

But mortgage lending is personal. What’s true for most borrowers isn’t true for all borrowers. Some borrowers can save with an FHA loan, especially if their credit score is borderline — just high enough to qualify for piggyback financing.

The best way to find out for sure? Compare preapproval offers from several lenders to see which type of financing is most affordable for you.

Piggyback loans vs PMI vs FHA loans

If you’re making a cash down payment of less than 20%, you might be looking at three popular loan options: a piggyback loan, a conventional loan with private mortgage insurance (PMI), or an FHA loan with mortgage insurance premiums (MIP).

In a three-way match-up, which mortgage product comes out on top? Let’s look at an example of a home purchase of $350,000 with 10% cash available to put down.

*Rates are only examples and are not taken from current rate sheets. Your rate may be higher or lower. Click here to request current rates.

In this scenario, the piggyback mortgage saved the buyer $113 per month compared to a conventional or FHA loan.

Again, your actual experience will depend on the rates you qualify for based on your credit score, debt-to-income ratio, and income level. Your mortgage lender can help you run the numbers and compare costs for each option.

Why doesn’t everyone do a piggyback loan?

In the scenario above, the piggyback mortgage is the clear winner in terms of monthly payments. However, this loan program may not be for everyone. There are a few factors to bear in mind when making this financial decision:

• Piggyback mortgages often require a high credit score. You probably need a 680 score to qualify, but that will vary with each lender. Borrowers with a less-than-perfect credit score, an irregular income history or who are using a gift for the 10% down payment will probably need FHA or conventional financing.
• Piggyback loans may be harder to refinance later. Before refinancing, the second mortgage would need to be paid off or subordinated. To subordinate the second mortgage, the refinance lender would need to agree to make their loan second in importance behind the new first mortgage. In some cases, this agreement can be hard to get, making refinancing more difficult.
• There is no Streamline Refinance option for piggyback mortgages. Expect longer refinance times compared to an FHA refinance.
• The second mortgage rate is often variable and based on the current prime rate. As rates rise, so will the second loan’s payments.
• The second mortgage is often referred to as a HELOC, or home equity line of credit. Some HELOC second mortgages require only interest to be paid each month. So in five or ten years, the balance will be the same if the borrower does not make additional principal payments.
• Each loan will likely have its own terms, requirements and rules. You should be prepared to supply documentation for two separate loans as the 80% first mortgage and 10% second mortgage are often placed with two separate lenders, each with its own rules.

Piggyback loan pros and cons

Pros of piggyback loans

• Lowers monthly payments for many home buyers
• Avoids PMI with only 10% cash down payment
• Can get a primary mortgage within conforming loan limits

Cons of piggyback loans

• Second lien on the home from day one
• Second loan often has a variable rate
• Requires a higher credit score

Piggyback loan FAQs

What is a piggyback loan?

With piggyback loans, home buyers can use a second mortgage loan to boost the down payment on their first, or primary mortgage loan. For example, a buyer could bring a 10% cash down payment and use a second mortgage to generate cash for another 10% down. The combined 20% down payment avoids PMI.

What is the advantage of a piggyback loan?

Because they simulate a 20% down payment conventional loan, piggyback loans eliminate the need for private mortgage insurance. The bigger down payment can also keep the primary mortgage within conventional mortgage limits, eliminating the need for a jumbo mortgage on high-value real estate.

How does a piggyback mortgage work?

A piggyback loan is two mortgages: A conventional mortgage that’s normally a fixed-rate loan and a second mortgage that’s often an interest-only home equity line of credit. The second loan provides part of the down payment on the first loan.

Is it hard to get a piggyback loan?

It’s gotten easier to find lenders who allow piggyback loans. Borrowers need higher credit scores — usually FICO scores of 680 or higher — to get approval. Both loan amounts must fit within the borrower’s debt-to-income ratio, or DTI.

Are piggyback loans still available?

Yes. In fact, they’re easier to find since they’re in high demand. Some lenders will offer both mortgage loans. Others will recommend lenders for the second mortgage.

Piggyback or traditional? Which loan is right for you?

Home buyers need to make their own decisions about which loan type is best based on factors like future financial goals, credit score, home price, and their down payment. A loan officer can help you determine the best fit for your financial situation.

Check your home buying eligibility. Start here (Sep 16th, 2024)

The post Piggyback Loan (80/10/10 Mortgage) | Rates & Requirements 2024 first appeared on My Mortgage Insider.

Highlights of the conventional loan program:

• Can be used to buy a primary residence, second home or rental property
• Down payments as low as 3%
• No monthly private mortgage insurance (PMI) with a down payment of at least 20%
• Lower mortgage insurance costs than FHA loans
• Mortgage insurance is cancelable when home equity reaches 20% (unlike with the federal government-backed FHA loans)

Click here to check today's conforming loan rates (Sep 16th, 2024)

In this article:

• Conventional mortgage down payment
• Private mortgage insurance (PMI) requirements
• Credit score minimums
• Conventional loans and bankruptcy
• Loan limits for 2024
• Eligible properties for conventional financing

Conventional loan requirements for 2024

Conventional conforming loans — the most common type of mortgage — need to meet lending standards set by Fannie Mae, Freddie Mac, and the Federal Housing Finance Agency (FHFA). Basic conventional loan requirements are as follows:

Conventional mortgage down payment

Conventional loans require as little as 3% down (this is even lower than FHA loans). For down payments lower than 20% though, private mortgage insurance (PMI) is required. (PMI can be removed after 20% equity is earned in the home.)

The more you put down, the lower your overall loan costs. Your down payment amount helps determine your PMI rate and interest rate, which affects your monthly payment amount and overall interest costs.
Bottom line: the higher your down payment, the less you’ll spend monthly and over the life of the loan.
You may also use gift funds from a parent or eligible non-profit agency to pay for your entire down payment and loan closing costs. Learn more about gift funds here.

Related: Conventional 97% LTV loan program

Check your conventional loan eligibility here (Sep 16th, 2024)

How down payment affects loan costs

*The scenarios are calculated based on a 30-year fixed rate loan at 4% interest for $200,000. 

**Assumes a 720-739 credit score.

Source: CFPB.

Private mortgage insurance (PMI)

PMI is required any time you put less than 20% down on a conventional loan. Once you reach 20% equity in your home, it can be removed though, unlike FHA mortgage insurance which is required for the life of the loan, in most cases.

For those with good credit, private mortgage insurance on conventional loans can cost less than FHA mortgage insurance premiums. Why? PMI is risk-based insurance, like auto insurance, meaning the better your credit history, the lower your premiums. The lower your premiums, the lower your monthly mortgage payment. So you benefit if you have a clean history.

Each private mortgage insurance company has varying rates for different down payment and credit score scenarios. Make sure your lender shops around for the best PMI cost for you.

For an in-depth comparison of PMI and FHA mortgage insurance, see our post that compares FHA to the Conventional 97 loan.

Can a second mortgage eliminate PMI?

A loan option that is rising in popularity is the piggyback mortgage, also called the 80-10-10 or 80-5-15 mortgage.

This loan structure uses a conventional loan as the first mortgage (80% of the purchase price), a simultaneous second mortgage (10% of the purchase price), and a 10% homebuyer down payment. The combination of both loans can help you avoid PMI, because the lender considers the second loan as part of your down payment. A piggyback loan can make homeownership accessible for those who may not yet have saved a down payment.

For an in-depth look at these loans, see our piggyback loan blog post.

Conventional loan credit scores

In general, conventional loans are best suited for those with a credit score of 680 or higher. If you have a higher credit score, it’s possible that a conventional loan will offer the lowest mortgage rate. Applicants with lower scores may still qualify, but they can expect to pay higher interest rates.

Buyers with lower credit scores might benefit from a different type of mortgage, perhaps one backed by a government agency. Some other loan programs may cost less overall. For example, Fannie Mae and Freddie Mac impose Loan Level Price Adjustments (LLPA) to lenders who then pass those costs to the consumer. This fee costs more the lower your credit score.

For instance, someone with a 740 score putting 20% down on a home has 0.25% added to their loan fee. But, someone with a 660 score putting the same amount down would have a 2.75% fee added. These fees are not paid upfront but rather, translate to higher interest rates for homeowners.

See the complete matrix of LLPAs.

Conventional loan debt-to-income (DTI) ratios

The maximum debt-to-income ratio (DTI) for a conventional loan is 45%. Exceptions can be made for DTIs as high as 49.9% with strong compensating factors like a high credit score and/or lots of cash reserves.

If you have dings on your credit or don’t have a lot of cash reserves, your maximum DTI may be much lower than 45%. In general, the lower your DTI, the higher your chance of loan approval.

The best way to check the maximum home price for your debt-to-income level is to get a pre-approval from a conventional loan lender.

Click here to check your maximum home price (Sep 16th, 2024)

Income and asset documentation

Like with most other mortgage loan types, you’ll be required to provide documentation proving your income and assets. Here’s a list of some of the documentation you may need:

• 60 days of bank statements (all pages)
• 30 days of pay stubs
• 2 years of tax returns if self-employed, have rental properties, or non-salary income (retirement, pension, etc.)
• 2 years W2s
• Social security, retirement and/or pension award letters, and 2 years’ 1099s
• Rental agreements for any investment properties currently owned

Apply for a conventional loan in one minute (Sep 16th, 2024)

Conventional loans and recent bankruptcy

It is possible to be approved for a conventional loan after bankruptcy. There are required waiting periods though, and you must demonstrate you’ve re-established your credit.
The lender must determine the cause and significance of the derogatory information, verify that sufficient time has elapsed since the date of the last derogatory information, and confirm that the borrower has re-established acceptable credit history.

Fannie Mae Guidelines

Required waiting periods after bankruptcy:

• Chapter 7 or Chapter 11: A four-year waiting period, measured from the discharge or dismissal date is required. A waiting period of two years is possible if extenuating circumstances can be documented, such as job loss that is not expected to recur.
• Chapter 13: Two years from the discharge date or four years from the dismissal date. With extenuating circumstances, a waiting period of two years is possible from the dismissal date.

Bankruptcy is never a good thing on your credit report, but it doesn’t necessarily disqualify you from ever getting another mortgage.

Related: Buying a House After a Foreclosure or Short Sale

See if you are eligible for a conventional loan here (Sep 16th, 2024)

What if you don’t qualify for a conventional loan?

After reviewing the qualifications above, you might realize that you don’t qualify for a conventional loan. That shouldn’t dash your homeownership dreams.

Instead, it’s time to consider alternative loan options. If you are a veteran, take a look at the VA loan. If you don’t have a big down payment saved up, consider an FHA loan through the Federal Housing Administration. Or if you live in a rural area, consider a USDA loan.

The right type of loan is out there. If a conventional loan isn’t a great fit, that’s okay!

Conventional loan guidelines 2024

2024 conventional loan limits

The conventional loan limit for 2024 is $766,550 for a single-family home. Though, Fannie Mae and Freddie Mac have designated high-cost areas where limits are higher. For example, a single-family home in Seattle, Washington could have a maximum loan of $977,500. The same home located in Los Angeles, California would be eligible for a loan amount up to 1,149,825.

Increased loan amounts are also available for 2-, 3-, and 4-unit homes. For multi-unit homes located in high-cost areas, loan limits are even higher. For example, a 4-unit home in Honolulu, Hawaii can be financed up to $2,211,600.

Baseline conventional loan limits:

• 1-unit home: $766,550
• 2-unit home: $981,500
• 3-unit home: $1,186,350
• 4-unit home: $1,474,400

For homes that exceed the conforming loan limit, borrowers may be able to purchase with a jumbo loan.

Check your conforming loan eligibility and today's rates here (Sep 16th, 2024)

Eligible properties for conventional financing

• Single-family homes (detached homes)
• Planned Unit Developments (PUDs), which typically consist of detached homes within a homeowners’ association
• Condominiums
• 2-, 3-, and 4-unit properties
• Some co-op properties
• Manufactured homes (although few lenders offer this program)

Conventional loans for condominiums

Many condo projects across the country are eligible for conventional financing. There are some specific guidelines that must be met, though. For newly built or converted condo projects, there may be some additional exceptions. If you are unsure if a unit in a condo project you are interested in meets these guidelines, ask your real estate agent or loan officer.

Here are some of the conventional loan requirements a condo must meet to be eligible:

• All common areas must be complete and owned by the unit owners or HOA
• At least 51% of the total units in the project must be owner-occupied or second homes
• The HOA must have an adequate budget
• At least 90% of the units must be sold and currently owned by unit owners (existing projects)
• No single entity may own more than 10% of the units in the project
• The project must be adequately covered by insurance

Second homes and investment/rental properties

Unlike government loan programs, conventional loans can be used to purchase a second home or a rental property. Interest rates and down payment requirements are higher when financing a rental home, but the conventional loan remains one of the few loan programs available to purchase rental properties.

Click here for today's rental property and second home interest rates (Sep 16th, 2024)

Conventional loan guidelines FAQ

What is a conforming loan?

A conforming loan has a dollar amount at or below the limits set by the Federal Housing Finance Agency (FHFA). Additionally, conforming loans must meet the funding criteria set by Fannie Mae and Freddie Mae.

On the lender’s side, this allows them to sell conforming loans on the secondary mortgage market, which frees up capital for lenders to continue making home loans to other borrowers.

What is a mortgage loan limit?

A mortgage loan limit represents the maximum loan amount that Fannie Mae and Freddie Mac will purchase or guarantee for mortgage lenders.

With that, mortgage lenders are able to lend more than this dollar amount. But if a lender extends a mortgage for more than the conforming loan limits, the lender cannot sell the mortgage to Fannie Mae or Freddie Mac.

Why do loan limits matter?

Loan limits matter because many lenders want to sell their home loans on the secondary mortgage market. As a result, borrowers can be hard-pressed to find a lender that’s willing to offer a loan over the predetermined limit.

When shopping for a home, buyers should keep the conforming loan limits in mind. Although it’s possible to get a larger loan, conventional loans that meet these standard limits are much easier to come by.

What if my loan is over the conventional loan limit?

If your loan is over the conventional loan limit, that makes it a non-conforming loan. As a borrower, this means that you’ll face higher monthly payments based on the high dollar amount of your loan. Additionally, the lender won’t be able to sell your loan on the secondary mortgage market.

What’s the jumbo loan limit for 2024?

A home loan that exceeds the conforming loan limits is considered a jumbo mortgage.

As of 2024, that means a home loan for more than $766,550 for a single-family home in most of the country. However, the median home value around the country varies dramatically. With that, the conforming loan limits are higher in places like Washington D.C., San Francisco, Guam, the U.S. Virgin Islands, New York and more.

The FHFA accounts for higher cost of living areas by raising the conforming loan limit for single-family homes to $1,149,825. With that, single-family home loans must exceed $1,149,825 in high-cost areas to be considered a jumbo loan.

What are the conventional loan limits for 2024?

The conventional loan limit for 2024 is $766,550 for a single-family home. However, in high-cost-of-living areas, the conventional loan limit expands to $1,149,825 for single-family homes.

The conventional loan limit for a two-unit property in 2024 is $981,500. But in high-cost areas, the limit for two-unit homes expands up to $1,472,250.

What is considered a jumbo loan in 2024?

A jumbo loan is a loan that exceeds the conforming loan limits. With that, a loan of over $766,550 in 2024 for a single-family home in most of the country would be considered a jumbo loan. However, in high-cost areas, a single-family home loan would need to exceed $1,149,825 to be considered a jumbo loan.

What are the Fannie Mae loan limits for 2024?

The Federal Housing Finance Agency (FHFA) set the conforming loan limit baseline at $766,550 for 2024. With that, Fannie Mae is only willing to acquire mortgages of less than $766,550 for single-family homes in 2024 in low-cost areas.

However, in higher-cost-of-living areas, Fannie Mae loan limits rise up to $1,149,825 for single-family homes.

Are FHA limits increasing in 2024?

Yes, FHA loan limits increased in 2024. Currently, the new baseline limit is $766,550. That’s an increase of roughly $40,000 from 2023’s FHA loan limit of $726,200.

The rising loan limits can be partially attributed to a hot housing market.

Want to learn more about your FHA loan options? Check out our free resources.

I’m ready to apply for a conventional loan

Conventional loans are a great mortgage option for qualifying homebuyers. Depending on your financial situation, it’s likely a conventional loan will offer lower rates than other types of mortgages. Down payment requirements are as low as 3%, and private mortgage insurance (PMI) is cancelable when home equity reaches 20%.

Click here to check today's conventional loan rates (Sep 16th, 2024)

The post Conventional Loans | Requirements & Guidelines for 2024 first appeared on My Mortgage Insider.

But this loan program has a tradeoff: FHA mortgage insurance premiums (MIP). Someone with a $250,000 FHA loan can expect to pay about $30,000 in mortgage insurance premiums over the life of the loan. Those insurance payments can really add up.

Some FHA borrowers can get rid of their monthly mortgage insurance premiums. Others will need to refinance into another type of loan to eliminate this extra monthly expense. Here are some tips for FHA mortgage insurance removal.

See if you can cancel your FHA mortgage insurance. Start here (Sep 16th, 2024)

What is FHA mortgage insurance premium (FHA MIP)?

FHA mortgage insurance premium, also known as FHA MIP, helps keep the Federal Housing Administration (FHA) loan program operating.

The FHA is not a mortgage lender; instead, it’s an insurance provider for lenders. When you get an FHA loan, your lender provides the money. The FHA insures the loan.

So if you stopped making payments and the lender had to foreclose, the FHA would step in to help cover the lender’s losses.

With this insurance coverage in force, the lender can approve loans even when the borrower has average credit, a low down payment, and a debt-to-income ratio up to 50 percent.

But it’s the borrower who pays the mortgage insurance premiums (MIP).

Check your eligibility. Start here (Sep 16th, 2024)

How much does mortgage insurance cost?

Modern FHA mortgage loans charge two types of mortgage insurance premiums:

• Upfront MIP: This coverage adds 1.75 percent of the loan amount upfront. For a $250,000 loan, 1.75 percent equals $4,375 to be paid as part of closing costs or rolled into the loan amount.
• Annual MIP: Most borrowers pay 0.85 percent of their loan balance each year in annual MIP. For a $250,000 loan balance, 0.85 percent equals $2,125, which would be broken down to 12 monthly payments of about $177 each.

The FHA charges a different annual insurance rate for some loans, and we’ll explore those details more below. Most borrowers pay the 0.85 percent annual rate.

Paying these premiums can be a good deal: They can save more in interest than they cost in monthly fees. Still, many borrowers want to get rid of this added cost.

How do I cancel my FHA mortgage insurance premium (MIP)?

The Federal Housing Administration changes its mortgage premium costs and policies from time to time. So how, and whether, you can cancel your FHA MIP will depend a lot on the age of your loan.

The last major change in FHA MIP policies went into effect on June 3, 2013. This means loans that were closed prior to June 3, 2013, have different policies.

For FHA loans opened before June 3, 2013

If you closed your FHA loan prior to June 3, 2013, you can cancel your loan’s annual MIP payments if:

1. The mortgage loan is in good standing
2. Your loan balance is at or below 78% of the last FHA-appraised value, usually the original purchase price.

If you haven’t quite reached the 78% loan-to-value ratio (LTV), keep making regular payments and checking with your loan servicer.

Borrowers who have already hit the magical 78% LTV can potentially start saving hundreds on their monthly payments and keep their existing FHA loan and interest rate intact.

Check your eligibility. Start here (Sep 16th, 2024)

For FHA loans opened on or after June 3, 2013

Most home buyers with newer FHA loans will have a harder time canceling their annual MIP payments. That’s because the FHA made annual MIP permanent for many borrowers starting in 2013.

Unless you put at least 10 percent down on your home — much higher than the 3.5 percent minimum down payment required for most borrowers — you’re stuck with annual MIP payments until you pay off the loan.

If you put 10 percent or more down, your MIP will go away after you’ve made payments on your loan for 11 years.

If you put less than 10 percent down, you’ll likely need a mortgage refinance to eliminate these monthly premiums.

See if you can cancel your FHA mortgage insurance. Start here (Sep 16th, 2024)

Refinancing out of FHA MIP

If you’ve built up a fair amount of equity in your home, refinancing out of the FHA loan program can eliminate FHA mortgage insurance premiums.

Most homeowners with FHA loans refinance into a conventional loan. Conventional loans do not have insurance from the federal government so borrowers will need stronger credit scores and enough home equity to qualify.

Most conventional lenders require 20 percent home equity for refinance loans. That means your current loan balance can’t exceed 80 percent of your property value. For a home with a value of $300,000, you’d need to pay your loan balance down to $240,000 or lower to refinance.

Rising home values also help you build equity more quickly and since prices have been going up, many homeowners will reach 20% equity faster than they would through regular loan payments alone.

Keep in mind that rising home values also help you build equity more quickly. And since prices have been going up across the nation, many homeowners will reach 20% equity faster than they would through regular loan payments alone. If you think you have enough equity to refinance out of MIP due to rising home values, your lender can check via an appraisal during the refi process.

Refinancing won’t always save money, even if you get rid of FHA MIP. If your new refinance rate exceeds your current rate, for example, you will likely pay more in interest on your new loan than you’re paying in MIP right now.

Be sure you get at least three loan offers to find the lowest possible rate. It’s also important to know that conventional loans require mortgage insurance, too — if you refinance with less than 20 percent equity.

Check your eligibility. Start here (Sep 16th, 2024)

Conventional PMI vs FHA mortgage insurance

Conventional mortgage loans do not require government mortgage insurance premiums (MIP), but they do require private mortgage insurance, or PMI.

Unless you put 20 percent down — or refinance with at least 20 percent in home equity — your conventional lender will likely require PMI.

PMI will add extra money to your monthly mortgage payment just like the FHA’s annual MIP. PMI may even exceed FHA MIP rates depending on your credit score, debt load, and home equity.

But, unlike with the FHA’s current MIP policies, it’s possible to cancel a conventional mortgage’s PMI.

Once your loan balance falls to 80 percent of the current value of your home, you can request PMI cancellation. PMI should cancel automatically when your loan reaches 78 percent LTV.

Check your eligibility. Start here (Sep 16th, 2024)

Can you get rid of PMI on an FHA loan without refinancing?

Refinancing requires closing costs which could add 5 percent or more to the cost of your new loan. And, with mortgage rates increasing, refinancing could cost even more if you can’t match or beat your current home loan’s rate.

Some FHA loan holders can get rid of their mortgage insurance premiums without refinancing. If you:

• Put 10 percent or more down: Your annual MIP will go away on its own after you’ve made payments for 11 years.
• Closed your loan before June 3, 2013: Your annual MIP will go away once you’ve paid your loan down to 78 percent of your home’s value. If your FHA-appraised value is $250,000 and your loan balance is $195,000, you can stop paying MIP.

But if you put less than 10 percent down on a loan closed on or after June 3, 2013, your MIP will remain for the life of the loan. You’d need a mortgage refinance — or to pay off the loan completely — to stop paying MIP.

Check your eligibility. Start here (Sep 16th, 2024)

Tips to lower your FHA mortgage insurance rate

When you’re shopping for a mortgage, the FHA loan program’s mortgage insurance premiums may seem like a big downside — especially since annual MIP often lasts for the life of the loan.

But not all borrowers pay the full 0.85 percent annual MIP rate for the life of the loan. By shortening your loan term to 15 years or making a larger down payment, you can reduce your annual MIP rate and term.

For example, if you:

• Get a 15-year loan instead of a 30-year loan: Your annual MIP rate would be 0.70 percent for the life of the loan
• Put 5 percent down on a 30-year loan: Your annual MIP rate would go down to 0.8 percent for the life of the loan
• Put 10 percent or more down on a 30-year loan: You’d pay an annual MIP of 0.8 percent for 11 years
• Put 10 percent or more down on a 15-year loan: You’d pay a 0.45 percent annual MIP rate for 11 years

If you borrow more than $625,500, you’ll see higher annual MIP rates. They could go as high as 1.05 percent of your loan balance.

Check your eligibility. Start here (Sep 16th, 2024)

Is FHA MIP more expensive than PMI?

When you can pay 20 percent down on your mortgage loan, the MIP vs PMI question is easy: You’ll save with a conventional loan that requires no PMI payments when you put 20 percent down.

If you’re making a smaller down payment, the question is more complicated. For some borrowers, the FHA’s mortgage insurance premium (MIP) costs less than the private mortgage insurance (PMI) on a conventional loan.

Unlike FHA MIP rates which are set based on your down payment size and loan term, private mortgage insurance rates vary by lender and borrower. Annual PMI rates tend to range from 0.5 to 1.5 percent of the loan amount.

A borrower who barely qualifies for a conventional loan — which often means a credit score around 620 and a down payment of at least 3 percent — may save more money with an FHA loan, despite the loan’s 1.75 percent upfront mortgage insurance premium.

Every borrower is different. To see your actual costs, you’ll need to compare Loan Estimates from a variety of lenders.

Check your eligibility. Start here (Sep 16th, 2024)

Four ways to get rid of PMI

The biggest benefit of paying PMI on a conventional loan instead of MIP on an FHA loan is the PMI cancellation policies.

The Homeowners Protection Act of 1998 helps ensure borrowers won’t pay PMI indefinitely.

To get rid of PMI on a conventional loan you can:

• Make payments until PMI is canceled: When you have a conventional loan, getting rid of PMI is just a matter of waiting. Your lender will cancel PMI once you’ve paid down your original loan balance down to 78 percent of the value of your home
• Ask for cancellation when you achieve 20 percent equity: You don’t have to wait until you’ve reached 78 percent LTV. When you reach 80 percent LTV — or 20 percent equity — you’re eligible for PMI cancellation. You just have to ask your loan servicer
• Get a new valuation: The value of your home is defined by a home appraisal. If you think your home value has increased a lot recently, a new appraisal may show you already have 20 percent equity — enough to cancel PMI. If you don’t request a new valuation, your lender will likely calculate your equity based on your original value
• Refinance if equity has increased: Different conventional loan programs backed by Freddie Mac and Fannie Mae have different PMI requirements. You could refinance into a program that doesn’t require PMI for your home

There’s another way to eliminate PMI, but it works only for active-duty military members, military veterans, and some surviving spouses of veterans who were killed in the line of duty.

A VA cash-out refinance — which is available only for members of the military community — can help you refinance from a conventional loan into a VA loan and will not require any annual mortgage insurance. The loan does require an upfront funding fee, however. If you ever served in the military and were honorably discharged, you likely have VA loan eligibility.

FHA mortgage insurance premium FAQs

When can you drop PMI on an FHA loan?

FHA loans do not charge PMI. Instead, they require MIP, the FHA’s own brand of mortgage insurance premiums. Modern FHA loans require MIP for the entire life of the loan unless you put 10 percent or more down. In that case they go away after 11 years. For FHA loans closed before June 3, 2013, MIP expires after the loan balance reaches 78 percent of the home’s value.

What is FHA MIP?

FHA MIP is the Federal Housing Administration’s specific type of mortgage insurance. The FHA charges two types of MIP: An upfront fee that equals 1.75 percent of your loan amount and an annual fee that equals 0.85 percent of the loan amount for 30-year loans with 3.5 percent down.

Does FHA require PMI without 20 percent down?

FHA loans always require MIP. If you put 20 percent down, you’d still pay upfront MIP and annual MIP for at least 11 years. If you put 20 percent down on a conventional loan you shouldn’t need to pay any PMI.

Can PMI be removed from an FHA loan?

MIP can be removed from some FHA loans. If you put 10 percent or more down, MIP will expire after 11 years. If you closed your FHA loan before June 3, 2013, your MIP will expire once your loan amount falls to 78 percent of your home’s FHA-appraised value.

Can I cancel PMI after 1 year?

Most conventional lenders require PMI until the loan’s principal balance falls to 80 percent of the home’s value. If you can reach this threshold in one year, then you can cancel PMI after a year. This isn’t true with FHA loans which require MIP throughout the loan term for most borrowers.

How soon after closing can you remove PMI?

PMI on a conventional loan does not have a set expiration date. Instead, it’s required until you pay the mortgage balance down to 80 percent of the home’s value. You can reach this threshold sooner by making extra payments. An FHA loan’s MIP, which resembles conventional PMI, lasts until you pay off the home — unless you put down 10 percent or more in which case MIP expires after 11 years.

Do any lenders specialize in FHA-to-conventional refinances?

Almost all lenders offer FHA-to-conventional refinances. Conventional loans are the most common loan type for residential real estate.

Can you take cash out when removing mortgage insurance?

It is possible to take cash out when refinancing to remove mortgage insurance. Cash out eligibility depends a lot on your home equity. You’d need to leave 20 percent of your equity in the home. To get 20 percent cash out, you’d need to have 40 percent in equity.

How can I get rid of PMI without 20 percent down?

Typical conventional loans require PMI unless you put 20 percent down. However, a few lenders will waive PMI in exchange for a higher interest rate. This approach may cost even more than paying PMI unless you refinance out of the higher rate.

How is mortgage insurance (MIP) calculated by FHA?

All FHA loans require 1.75 percent of the loan amount as upfront MIP. Annual MIP can vary from 0.45 percent to 1.05 percent depending on your loan amount, loan term, and down payment amount. If you get a 30-year loan and make the FHA’s minimum down payment of 3.5 percent, your annual MIP would add 0.85 percent of the loan amount per year.

Does FHA mortgage insurance go down every year?

If your loan balance goes down — as it should — every year, your FHA MIP will go down, too. This happens because MIP is charged as a percentage of your loan balance. You’ll pay a premium based on your original loan amount only in the first year.

Does FHA mortgage insurance ever increase?

The FHA changes its MIP rates from time to time. But these changes apply only to new FHA loans. Existing FHA loans keep their existing MIP rates and policies.

Is paying PMI or MIP worth it?

Yes. To avoid MIP or PMI, you’d need to save up a 20 percent down payment. Meanwhile, as you save money, house prices may be increasing. PMI and MIP allow you to buy sooner by lowering your down payment target.

Making a plan to get rid of FHA mortgage insurance is a great financial decision

When you’re buying a home, you’re mainly focused on getting into a place where you can set down roots and build a solid future. The down payment can be a big hurdle so high FHA PMI costs can be a worthwhile trade-off.

But now that you’re settled in, you might want to get rid of those FHA mortgage insurance premiums so you can put that money into savings, your child’s college fund, or toward high interest credit card debt.
Even if you can’t cancel your mortgage insurance now, you can make a plan for how you’re going to do it.

Check today's rates and start your MIP-eliminating refinance here (Sep 16th, 2024)

The post How to Get Rid of PMI on an FHA Loan | No Refinancing 2024 first appeared on My Mortgage Insider.

But there is a situation in which lending rule maker Fannie Mae allows you to buy a home as an owner-occupied residence, even though you don’t plan to live in it.

This exception is when you are buying a home for elderly parents. This loan option is sometimes referred to as the Family Opportunity Mortgage.

Buying a home for aging parents

According to Fannie Mae, a child may provide housing for an elderly parent “if the parent is unable to work or does not have sufficient income to qualify for a mortgage on his or her own.”

Additionally, the parents do not have to be on the loan.

This means that as a child of aging parents, you can supply housing for them and obtain the same rates, fees, and lending flexibility as if you were buying your own home to live in. Again, you don’t have to live in the home you buy with your parents to get these special accommodations. Your parent or parents can live there and you can remain in your current living situation.

If not for this allowance by Fannie Mae, children buying a home for elderly parents would need to buy the property as a second home or investment property.

Second homes generally need to be 50-100 miles away from your current primary residence — not exactly convenient or safe if your parents need regular care.

And investment properties require a 20-30% down payment, harder qualification criteria, and significantly higher mortgage interest rates.

The relaxed guidelines around buying a home for an elderly parent could mean the difference between being able to afford it or not.

Family Opportunity Mortgage guidelines

Because the purchase is considered owner-occupied, the buyer can put as little as 5% down on the home by obtaining a mortgage insurance policy. This reduced down payment requirement can lower the initial cost required by at least $30,000 on a $200,000 home purchase.

Not only that, but classifying the home as an investment property instead of an owner-occupied one will raise the rate by about 0.50%, or $45 per month on a $150,000 mortgage.

With assisted living costs skyrocketing, purchasing a home for elderly parents can be very cost-effective. You may find that the mortgage payment is a fraction of the cost of a nursing home or assisted living facility.

Even purchasing a home and combining it with in-home nursing visits may be more affordable than a nursing home.

Qualifying for a Family Opportunity Mortgage

To qualify for the loan, you’ll need to meet the general Fannie Mae conventional loan guidelines, and you may have to supply a few additional items, such as:

• Proof of relationship to parent if it’s not obvious, for instance, if you have a different last name than your parent
• Parent’s pay stubs, if any
• Parent’s Social Security award letter (to prove your parents can’t afford the mortgage on their own).

If it appears you qualify to buy a home for your parents as an owner-occupied residence, contact one of our lending professionals for a free mortgage rate quote. They may be able to help get your parents into a great home.

The post Fannie Mae Family Opportunity Mortgage | 2024 Guidelines first appeared on My Mortgage Insider.

The Conventional 97 program allows homebuyers to get a conventional mortgage loan with only 3% down.

The program is named for the 97% of the home value that is financed by the lender after the buyer makes a 3% down payment.

The loan program can finance a single-family home or condo unit — as long as the buyer plans to use the home as a primary residence.

Conventional 97 offers an alternative to FHA loans, which require a similar 3.5% down payment.

Check your eligibility for a 3% down payment conventional mortgage. Start here (Sep 16th, 2024)

In this article:

• Conventional 97 loan guidelines
• Credit score requirements
• Conventional 97 mortgage rates
• Conventional 97 vs FHA and other loan types
• Conventional 97 loan FAQ
• How to get a Conventional 97 Loan

2024 conventional 97 guidelines

Aside from requiring only 3% down, Conventional 97 loans work a lot like other conventional mortgage loans.

But this loan program works only for first-time home buyers — defined as buyers who haven’t owned a home in the past three years. For borrowers looking for a low down payment mortgage, it can be a good mortgage option.

Here are some other Conventional 97 loan qualifications:

• The loan must be a fixed-rate mortgage
• The property must be a one-unit single-family home, co-op, PUD, or condo
• At least one buyer must not have owned a home in the last three years
• The property must be the owner’s primary residence
• At least one borrower must take a homebuyer education course
• The loan amount must be at or below $766,550

These features align well with the typical first-time homebuyer’s profile.

For instance, most buyers today are looking for a one-unit home — as opposed to a duplex or triplex — or a condo that they plan to live in as their primary residence. First-time buyers are also likely to be seeking something with a lower purchase price.

Today’s average home price is around $350,000 according to the National Association of Realtors, putting a Conventional 97’s average down payment at $10,500 — within reach for many home shoppers.

By comparison, making a 20% down payment would require $70,000 upfront.

Check your eligibility for the conventional 97% LTV program. Start here (Sep 16th, 2024)

Conventional 97 credit requirements

Many homebuyers assume they need impeccable credit scores to qualify for a loan that requires only 3% down. That’s not the case.

According to Fannie Mae’s Loan Level Price Adjustment (LLPA) chart, a borrower can have a score as low as 620 and still qualify for a 3% down loan.

How is this possible? Private mortgage insurance, or PMI, is one reason. When you put less than 20% down, you’ll pay these premiums which protect the lender in case you default.

This extra layer of protection for the lender enables the lender to offer lower rates.

Check your 97% LTV rates. Start here (Sep 16th, 2024)

Is it worth paying PMI?

PMI gets a bad rap. But paying it can unlock decades of savings on interest for new homeowners.

Yes, private mortgage insurance would make the 3% down option more expensive on a monthly basis, at first.

But the borrower’s down payment requirement is substantially lower, allowing them to buy a home much sooner — before house prices increase again.

And remember, you can cancel PMI when the loan’s balance reaches 80% of the home’s value. Lenders call this percentage your loan-to-value ratio, or LTV.

When LTV falls to 78% of the property’s value, PMI automatically drops off.

Conventional 97 interest rates

Mortgage rates for the 3% down payment program are based on standard Fannie Mae rates, plus a slight rate increase.

However, this fee or rate increase is often minimal compared to the value added from earlier home buying.

Someone buying a $300,000 home would pay about $80 more per month by choosing the 97% loan option compared to a 5% down loan.

Yet, the buyer reduces their total upfront home buying costs by over $5,000.

The time it takes to save an extra 2% down payment could mean higher real estate prices and tougher qualifying down the road. For many buyers, it could prove much cheaper and quicker to opt for the 3% down mortgage immediately.

Check your eligibility for a 3% down payment conventional mortgage. Start here (Sep 16th, 2024)

Low down payment alternatives to Conventional 97 loans

Conventional 97 loans vs FHA loans

Before Fannie Mae introduced 3% down payment conventional loans, more home buyers who needed a low down payment loan chose an FHA loan.

FHA loans are still the best choice for a lot of buyers. The Federal Housing Administration, which insures these loans, requires 3.5% down for most new home buyers, putting an FHA down payment in the neighborhood of a Conventional 97’s.

But unlike conventional loans, FHA loans allow credit scores below 620 — and as low as 580. Plus, the FHA doesn’t add Loan Level Price Adjustments like conventional loans.

So, if your credit is borderline — just barely good enough to qualify for a Conventional 97 — you might draw a better-rate loan from the FHA.

The catch is the FHA’s mortgage insurance. Unlike PMI on a conventional mortgage, FHA mortgage insurance premiums (MIP) won’t go away unless you put 10% or more down. You’ll keep paying the annual premiums until you pay off the loan or refinance.

The FHA also charges an upfront mortgage insurance premium. This one-time, upfront fee totals 1.75% of the loan amount for most borrowers.

Conventional 97 vs other government-backed loans

FHA isn’t the only government-backed loan program. Two other programs — USDA loans and VA loans — offer new home loans with no money down.

Unlike FHA and conventional loans, USDA and VA loans won’t work for just any borrower.

VA loans go to military members or veterans. They’re a perk for people who have served. And they’re an attractive perk. Along with putting no money down, VA borrowers won’t pay annual mortgage insurance — just an upfront funding fee.

Zero-down USDA loans work in rural and suburban areas and only for borrowers who earn less than 115% of their area’s median income. They also require a higher credit score — usually 640 or higher.

Conventional 97 vs other low down payment conventional loans

Fannie Mae and Freddie Mac offer more than one low down payment loan. So far in this post, we’ve been discussing Fannie’s standard 3% down mortgage.

But some borrowers may prefer:

• Fannie Mae’s HomeReady: This 3% down loan is designed for moderate-income borrowers. If you earn less than 80% of your area’s median income, you may qualify for HomeReady. What’s so good about HomeReady? In addition to low down payments, this loan offers reduced PMI rates which can lower your monthly payments
• Freddie Mac’s Home Possible: This 3% down loan works a lot like HomeReady. It adds the ability to use sweat equity toward the down payment. This can get complicated, and you’d need the seller’s approval in advance. But it is possible.
• Freddie Mac HomeOne: This 3% down loan resembles the standard Conventional 97 from Fannie Mae. Unlike HomeReady and Home Possible, there are no income limits to worry about.

Your loan officer can help identify the low down payment loan that works best for you.

Check your eligibility for a 3% down payment conventional mortgage. Start here (Sep 16th, 2024)

97% LTV Home Purchase FAQ

What is a Conventional 97 loan?

A Conventional 97 is a conventional mortgage that requires only 3% down. It’s named for the remaining 97% of the home’s value that the mortgage will finance.

How do you qualify for Conventional 97?

Qualifying for a Conventional 97 loan requires a credit score of at least 620 in most cases. Debt-to-income ratio (DTI) should also fall below 43%. There are no income limits. Borrowers who already own a home or who have owned a home in the past three years won’t qualify.

Do all lenders offer Conventional 97?

Most lenders offer Conventional 97 loans. This product conforms to Fannie Mae’s rules. Lenders that offer Fannie Mae loans will likely offer this 3% down product.

Can closing costs be included in a conventional 97 loan?

No. As its name indicates, the Conventional 97 program can finance up to 97% of a home’s appraised value. Rolling closing costs into the loan amount would push the loan beyond this 97% threshold. However, many first-time homebuyers qualify for down payment and closing cost assistance grants and loans. Conventional 97 also allows gift funds. This means family members or friends could help you cover closing costs.

Who offers Conventional 97 loans?

Most private mortgage lenders — whether they’re online, downtown, or in your neighborhood — offer Fannie Mae conventional loans which include Conventional 97 loans.

Is there a minimum credit score for the 3% down payment program?

Borrowers need a credit score of at least 620 to get any Fannie Mae-backed loan. The exception would be those with non-traditional credit who have no credit score. Mortgage lenders can set their minimum credit scores higher than 620. Some may require 640 or 660, for example. Be sure to check with your mortgage lender to find out for sure.

Can I use down payment gift funds?

Yes. Fannie Mae states gift funds may be used for the down payment and closing costs. Fannie does not set a minimum out-of-pocket requirement for the buyer. You may also qualify for down payment assistance. Your mortgage officer can help you find programs in your state.

Can I buy a condo or townhome?

Yes. Buyers can purchase a condo, townhome, house, or co-op using the Conventional 97 program as long as it is only one unit.

Can I buy a manufactured home with 3% down?

No. Manufactured homes are not allowed with this program.

Can I buy a second home or investment property?

No. The 97% loan program may be used only for the purchase of a primary residence.

I owned a home two years ago but have been renting since. Will I qualify?

Not yet. You must wait until three years have passed since you had any ownership in a residence. At that point, you are considered a first-time home buyer and will be eligible to apply for a Conventional 97 loan.

Will mortgage insurance companies provide PMI for the 97% LTV home loan?

Yes. Mortgage insurers are on board with the program. You do not have to find a PMI company since your lender will order mortgage insurance for you.

How much is mortgage insurance?

Mortgage insurance varies widely based on credit score, from $75 to $125 per $100,000 borrowed, per month.

Can I get a conforming jumbo loan with 3% down?

No. This program won’t let lenders exceed conforming loan limits. At this time, high balance, also known as conforming jumbo loans — those over $766,550 — are not eligible.

I’m already approved putting 5% down, but I’d like to make a 3% down payment instead. Can I do that?

Yes. Even if you’ve already been through the underwriting process, your lender can re-underwrite your loan if it offers the Conventional 97 program. Keep in mind your debt-to-income ratio will rise with the higher loan amount and potentially higher rate.

Check your mortgage rates. Start here (Sep 16th, 2024)

What’s the maximum debt-to-income (DTI) ratio for the 97% LTV program?

Your overall profile including credit score determines your DTI maximum. While there’s no hard-and-fast number, most lenders set a maximum DTI at 43%. This means that your future principal, interest, tax, insurance, and HOA dues plus all other monthly debt payments (student loans, credit card minimum payments) can be no more than about 43% of your gross income.

Can I use the 3% down program to refinance?

Yes. If you have an existing Fannie Mae loan, you may be able to refinance up to 97% of the current value. Refinancing might allow borrowers to lower their monthly payments or eliminate mortgage insurance premiums.

Click here for more information about the 97% LTV refinance program.

Why is the program only for first-time home buyers?

Fannie Mae’s research uncovered that the biggest barrier to homeownership for first-time homebuyers was the down payment requirement. To spur more people to buy their first home, the minimum down payment was lowered.

Are there income limits?

The standard 3% down program does not set limits on your income. However, the HomeReady 97% loan does require the borrower to be at or below 80% of the area’s median income.

What is a HomeReady mortgage?

HomeReady is another program that requires 3% down. It has flexibilities built-in, such as using income from non-borrowing household members to qualify.

To see if you qualify for the HomeReady program, see the complete guidelines here.

What is the Home Possible Advantage program?

HomeReady is another program that requires 3% down. HomeReady loans have flexibilities built-in, such as using income from non-borrowing household members to qualify.

How to get a conventional 97 loan

The Conventional 97 mortgage program is available immediately from lenders across the country. Talk with your lenders about the loan requirements today.

The ability to put only 3% down could open doors for you.

Check your eligibility for a 3% down payment conventional mortgage. Start here (Sep 16th, 2024)

The post Conventional 97 Loan | Guidelines & Requirements 2024 first appeared on My Mortgage Insider.

The reason? Fannie Mae has decided that its portfolio of foreclosed homes (aka REO properties) is shrinking and special incentives are no longer needed.

For buyers who have a signed purchase contract after October 6, Fannie Mae has loosened guidelines somewhat for its REO properties. Keep in mind that these updates only apply to properties that formerly qualified for the HomePath program:

• Maximum seller contributions of 6% of the purchase price when the down payment is less than 10%.
• When the buyer owns more than 4 financed properties and is buying a 2-4 unit home, the maximum Loan-to-Value is increased to 75%.

In short, buyers of HomePath properties will experience a few changes:

• HomePath buyers will now need an appraisal. HomePath Renovation homes will not pass minimum property requirements.  However, there is a renovation program available through FHA. See our FHA 203k page.
• Many HomePath properties are still available at 5% down, although private mortgage insurance (PMI) will be required. The additional cost will be minimal. While HomePath loans did not require PMI, they typically came with higher interest rates. 

To find out about HomePath Renovation program alternatives, complete this short online questionnaire and an expert will contact you to find the best program for your needs.

Also, see our complete guide to home renovation loans here.

Read on to find out more about the retired HomePath Renovation program.

HomePath Renovation Loan

Home renovation loans can be tough to find when you’re trying to buy and fix up a property with one loan. But with Fannie Mae’s HomePath® Renovation mortgage, you can do just that, with a small down payment and no mortgage insurance.

To find eligible properties, search on HomePath.com. Any home with the HomePath® Renovation logo is eligible for the program.

Check your HomePath eligibility. Start here (Sep 16th, 2024)

HomePath Renovation financing guidelines

Often, foreclosed homes are in bad shape and there are not a lot of financing options for them. That’s where the HomePath Renovation program comes in. This loan program was created specifically for homes in sub-par condition. It enables borrowers to buy the home, and it gets the home off of Fannie Mae’s books of foreclosed homes.

Like the regular HomePath program (see our page about standard HomePath loans), these loans require only a small 5% down payment (increased from 3% as of November 16, 2013), and don’t require monthly mortgage insurance.

Unlike standard HomePath, an appraisal is required for HomePath Renovation loans. The appraisal will reveal two things: 1) repairs needed, and; 2) the future appraised value, after repairs are complete.

The borrower can finance as much as 35 percent of the “as completed” value, but no more than $35,000. The repairs that the appraiser calls out must be done, but the borrower can make additional repairs to their liking, up to the maximum allowed amount.

For example, you could buy a home for $100,000 and request renovations such as a new deck and two renovated baths, totaling $20,000, per a contractor’s bid. Then, the appraiser determines that the home will be worth $150,000 after the improvements are made.

In this example, you could finance the full requested $20,000 above the purchase price, since it’s lower than 35 percent of $150,000.

But, if you purchased a house whose “as completed” value was to be $85,000, the maximum construction cost you could finance would be $28,000 (35% of $85,000).

Surprisingly, the HomePath Renovation loan is available for owner-occupied use, rental properties, and second homes.

If you plan to live in the home, the down payment can be as little as 5% of the purchase price plus improvement costs. For instance, if the purchase price is $200,000, and the construction will cost $25,000, the required down payment would be $11,250 (5% of $225,000).

Check your HomePath rates. Start here (Sep 16th, 2024)

The HomePath Renovation process

The HomePath Renovation loan starts like most other loans. The borrower pre-qualifies with full income, asset, and credit documentation given to the lender.

Then, the loan process becomes a little different than other loans:

1. Once a property is found, the buyer submits requested repairs to the lender, via one or multiple contractor’s bids.
2. The lender orders an appraisal. The appraiser figures the future “as completed” value of the home, factoring in requested modifications on the contractor’s bid.
3. The lender uses the appraisal to make sure the loan amount and construction costs are within guidelines.
4. The lender closes the loan and establishes an escrow account, from which the contractor will be paid.
5. The contractor must complete the work and request payment. At that time, the lender inspects the work and issues payment to the contractor.
6. Once all the work is complete, the lender does a final inspection.
7. If the final inspection is signed off by the lender, it issues any payment due to the contractor. Any funds left over are applied to the borrower’s principle loan balance.
8. The house is fixed up, and the buyer has a great home, and one loan and payment.

Check your HomePath rates. Start here (Sep 16th, 2024)

The contractor

The contractor can be of the buyer’s choosing but must be “licensed, insured, bonded, experienced, and reputable,” according to Fannie Mae. Bids must be complete with cost breakdowns and descriptions of materials used.

Allowed repairs

Interior and exterior repairs are permitted. Fixing something purely for cosmetic reasons is allowed, as long as it fits within the maximum construction cost limits. Fences, decks, baths, kitchens, and even landscaping can be included. The requirement is that the improvement must “add value to the property” and be “permanently affixed to the property.”

While appliances are allowed, they must adhere to the “permanently affixed” rule. So the lender may or may not allow a refrigerator to be financed, as it could be removed.

One limitation is for foundation repair. Since homes need to have a sound foundation to be eligible for the HomePath Renovation program, homes with foundation issues will not be on the list of eligible homes.

Questions & answers about the HomePath Renovation Program

What types of loans are available? Both fixed-rate as well as adjustable rate loans are available for the HomePath Renovation loan.

What credit score do I need? The minimum credit score for this program is 660 for loans with a down payment of 20 percent or less and 620 for borrowers with more than 20 percent down.

What if I don’t have the required credit score? You should look at FHA’s construction loan, called an FHA 203k loan. It may allow for a lower credit score.

Do I have to use HomePath Renovation financing on these properties? No, you could use an FHA 203k loan to buy and repair the home. However, the down payment will be lower, and there will be no mortgage insurance using the HomePath Renovation loan.

Where do I find a qualified HomePath Renovation Lender? A list of lenders qualified to approve and issue renovation loans is located on the website.

Can I buy and repair a condominium? Yes. In fact, Fannie Mae waives its condo project review requirement for all condos on its HomePath list.

Can I buy a home that I intend to live in if it currently has tenants? Yes, however, the tenants must agree to move out within 60 days, as the borrower is required to move in within that time frame. If the tenant has a non-expired lease, it must be honored according to federal law, so having the tenants move out may not be an option.

How long does the contractor have to complete the repairs?  All renovation work must be completed within 90 days of the closing date. There are certain exceptions that can be made but each 30 day extension beyond the initial 90 day period may require an extension fee.

Still have questions?

Complete our online contact form and we’ll be in touch.

Check your HomePath eligibility. Start here (Sep 16th, 2024)

The post Buy & Repair a Home with Fannie Mae’s HomePath Renovation Mortgage first appeared on My Mortgage Insider.