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FAQ: Low Down Payment Loans
Low down payment loans are available in a variety of shapes and sizes. Here are a few questions we get asked frequently about how to limit the amount of cash paid at closing on a transaction with mortgage financing.
The past few years have seen the options for applicants with little or no available cash for a down payment increase exponentially. Loan programs with small down payment requirements were historically confined to the realm of FHA and VA loan sources. During the preceding decade conventional lending sources have greatly expanded the number and type of available low down payment loan programs that require nominal out-of-pocket expense for prospective home buyers. Our company has a variety of conventional loan programs that limit a buyer’s out-of-pocket expense to less than 3% of the purchase price. For applicants with median credit scores of 680 or higher, our Low-Down 97 is the best low-down-payment option. But we have FHA options with 3.5% down allowing credit scores as low 580. Contact an AmeriFund loan consultant to determine which of our low down payment loans is best for you.
Closing costs and pre-paid items such as pre-paid insurance and escrow/impound account deposits can be paid or eliminated in a couple of ways. First, our company has “no closing cost” loan programs that include credits which enable our company to pay costs and pre-paid items so that you don’t have to pay them at closing. In most situations it makes more sense for a home buyer to negotiate a contract that requires the seller to pay closing costs and pre-paids. Our low down payment loans permit the seller to pay an amount equal to between 3% and 6% of the purchase price toward a buyer’s costs and pre-paids. This seller contribution is typically sufficient to cover all of the cost and pre-paids that would otherwise be paid by a buyer in the transaction.
As a general rule, borrowers who put less than 20% down in a transaction are required to pay for some type of mortgage insurance which insures the lender for foreclosure related losses in the event of a default and subsequent foreclosure. On FHA and VA loans, the mortgage insurance (on FHA) or funding fee (on VA) can be financed so that the borrower does not have to pay the premium at closing. On conforming loans, lender paid single premium options can be paid by the lender, but will require increasing the interest rate to do so. Or the buyer can utilize private mortgage insurance paid monthly with no upfront premium. The best way of paying for a single premium mortgage insurance option is to have the seller pay the premium and other costs as part of the term of the contract as discussed in the answer to a previous question.
Our company provides loan programs permitting 100% financing for investors seeking to purchase residential rental properties. These loan program have interest rates and cost structures significantly higher than conforming loan programs for investment properties. AmeriFund has developed its proprietary Texas 2-Step loan program that permits investors who can acquire properties at less than market value to obtain financing to cover 100% of their property acquisition and remodeling costs at highly favorable conforming interest rates and without the necessity of obtaining private mortgage insurance. This unique loan program permits investors to significantly improve cash-flow and profitability on residential investment properties.