Until now, VA Mortgage loans allowed qualifying veterans to borrow up to 100% of their home value – so there has been no down payment needed for a home purchase for most vets, and even when it came to tapping into home equity, veteran home owners have been allowed to access 100% of their home’s value in cash to refinance.  Now though, Ginnie Mae has decided to change that guideline (keep in mind, for refinances only!) to allow home owners to only access up to 90% of their home’s value through a cash out refinance.  Likewise, on FHA loans Ginnie has reduced the amount of cash out a consumer can pull from their home to 80% (previously 85%) of the home’s value.

The VA Mortgage loan program offers one of the best loan products for eligible Veterans

The tightening of loan to values for VA mortgage loans comes after many investors have recently changed the pricing structure on VA loans – in the past, VA loans have offered generous rebates to buyers in higher rate buckets – for example, a borrower could get a 4% at “par”, or the rate that neither costs the borrower any points, but also comes with no rebate/credit toward closing costs.  But a 4.25% may have offered a full point or more in a credit to a borrower.  Many lenders used this rebate to begin offering VA mortgage borrowers higher rates with the intention of refinancing them into a lower rate later, effectively getting 2 loans (and strapping borrowers with 2 sets of closing costs), or sometimes more.

Investors have changed their pricing structures to incentivize lower rates for borrowers to prevent churning – which is good news, but unfortunately also makes it tougher for borrowers who are short on funds that in the past could have relied on lender rebates to pay for closing costs.  A borrower’s best bet is to work with a lender they can trust.  A loan officer should advise clients on their best options and what makes the most sense for their unique situation, and should also be able to answer any questions borrowers have along the way.  Veterans especially need this guidance, because the VA mortgage loan program is one of the most beneficial loan products on the market – with no down payment requirements, no monthly mortgage insurance (PMI), and low rates, vets that can use their VA mortgage loan entitlement should always be given the option, and the proper guidance to get the best loan.

For now, borrowers have a short window of time to close on VA mortgage loans under current guidelines, but any loans that close and fund after 10/31/19 are subject to the new loan to value restrictions of using only 90% of their home value for cash out refinances (purchase loans will still be offered with 0% down payment required for qualifying veterans).

Have questions on VA loans, FHA loans, or anything else mortgage related?  Ask one of our experts and get a quick response to any and all questions here.

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One of the biggest mortgage misconceptions is how much money is needed as a down payment when purchasing a new home.   One rumor that won’t  die is that to buy a home, you need a large down payment.  So many people believe they need 20% down to buy a home.  In reality, that’s about 20% more than most people need to buy a home.

With the resurgence of low- to no-down payment products and programs, getting a mortgage for a new home requires very little in the way of down payment.  Below, you can read about

MasonMac can help bring you home with low and no down payment loan options

several programs that require little or no down payment, along with some info on when it’s a good idea to have or use a larger down payment, if possible.

The VA Loan program

For qualified veterans, the VA loan program allows a veteran and their spouse to purchase a new home with 0% down payment required (in most cases, as long as they have full eligibility and are buying a home using a VA loan under or equal to the VA mortgage limits for their area).

The VA loan has 0% down required, no monthly mortgage insurance, tremendous interest rates, allowances for sellers to pay closing costs, and flexible underwriting requirements for borrowers with less than perfect credit.  You do have to be a qualifying veteran to take advantage of this program, but if you can get a VA loan, it’s one of the best low/no down payment mortgage options available.

The USDA Loan program

USDA loans are available to low-moderate income buyers (low-moderate is subjective, but determined by county numbers, so those in high priced markets can have higher income than those in low priced markets), and require 0% down payment for qualified buyers.

USDA loans are available in rural areas (by definition, but many USDA-eligible areas are quite close to metropolitan areas), require $0 down, are flexible with credit requirements, allow sellers to pay closing costs, and have low monthly PMI.  Rates tend to be great on this product, too, so for those who can get a USDA loan, it’s a great product option for buyers without a lot of money for a down payment.

The FHA Loan Program

FHA loans generally have a down payment requirement, but it’s far less than 20%.  With just 3.5% down, a buyer can use the FHA mortgage program to obtain a great fixed rate.  To add to that, FHA allows buyers to use local or national down payment assistance programs to cover the gap between a true $0 down loan and FHAs 3.5% requirement.  There are many products and programs locally and nationally to help buyers with their down payment, and many will cover most or all of the down payment and closing cost requirements.

FHA loans have PMI, but it’s not that expensive, and the low rates and low down payment requirements, even with less than perfect credit, help to offset that cost.  Add in the fact that sellers can contribute to paying closing costs, and FHA becomes one of the best low down payment mortgage options out there.

Conventional Loans

This one is probably the biggest mystery, and also where the 20% down misconception comes from.  In order to get a conventional loan without PMI, a buyer needs to either have 20% down or get creative with a first and 2nd mortgage (commonly referred to as an 80-10-10 or 80-15-5).

Conventional loans, though, can be obtained with as little as 3% down.  There are also products for 5% down, 10% down, and 15% down under the conventional mortgage umbrella.  Conventional loans are priced (both the loan rate and mortgage insurance, or PMI, rates) based on down payment and credit score, so a buyer with great credit and 15% down will see a lower monthly payment than someone with less than good credit and 5% down, but that doesn’t mean a conventional loan isn’t possible to get.  With low fixed rates, PMI that can be cancelled when enough equity accrues, and an easy loan process, conventional loans with less than 20% down can be a great choice for many buyers.

Bottom line is that if someone wants to buy a home with less than 20% down, they have a tremendous amount of loan options at their disposal.  Rates, mortgage insurance, and other factors will determine which loan program is best for a buyer, and a great loan officer can share all of the available options, along with their positives and negatives.  So if a down payment is what’s holding you back from owning a home, please reach out to one of our Mason-McDuffie Mortgage professionals.  Chances are, you’ll be able to call yourself a home owner a lot sooner than you think.

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