Conventional over government loans?

Government loans (VA, FHA and USDA) have been the most popular minimum down mortgages for a long time.  They have allowed zero to 3.5% down, flexible guidelines and allowed many people to buy homes with little down.

Fannie Mae and Freddie Mac have come back with 3% down programs that may allow more flexibilty than some government programs. Fannie Mae eliminated their My Community program back in December 2015 and now have a program called Home Ready.  Freddie Mac has their Home Possible program and there is still a 3% down program that does not have income limits. One benefit to all these programs is the lack of an upfront fee.  FHA requires 1.75% added to the mortgage, USDA requires 2.75%.  VA loans require anywhere from 1.5-3.3% unless you have a VA disability.  That can add a huge amount to your mortgage, plus both USDA and FHA require a monthly fee.

The Home Ready program is a 3% down mortgage for low to moderate income families.  You can use all gift money for the down payment, you do not need any of your own money – the seller can help contribute towards the closing costs.  This program also allows you to use income from other members of the family as long as they live in the home with you.  With the current number of people that are living with parents or grandparents, this may allow you to purchase a home and use some of their income to help you qualify for the home.

Fannie Mae's Conventional 97 is another 3% down program that does not have income limits.  The mortgage insurance will be a bit higher, but it allows those with higher incomes to purchase a home with minimum down.  You can still ask the seller to contribute towards your closing costs. This program does not require a homebuyer education course either.

Freddie Mac's Home Possible is another 3% down program  This program may change slightly this summer, but for now, it has reduced mortgage insurance and may have slightly lower rates than the Conventional97 program. This program also allows for all gift money and you can ask the seller to contribute towards your closing costs. 

All the conventional programs will allow you to eliminate mortgage insurance once you have enough equity in the property – that is another benefit over the USDA and FHA programs.  The appraisal may be easier than a FHA appraisal also.  

Talk to your loan officer and see if one of these programs may help you purchase a home.  Home prices are great -but starting to go up slightly given the current market and interest rates are still very low!

Leslie Vanderwerf,  NMLS ID#335509, American Mortgage & Equity Consultants, Inc, An Equal Housing Lender, NMLS#150953 - Email - Website

Written By

Currently a Senior Loan Officer at Cross Country Mortgage LLC, it's hard to believe I have been in the mortgage business for more than 25 years and have worked with Sharlene since 2000! I love sharing mortgage insights here each week and helping people finance their homes. Listening helps me find the right program for you!

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