3% down vs FHA 3.5% down?

6 Replies

I’ve been reading about new 3% down payment for first time homebuyers . Does anyone have any insight on it ? Is it better than the standard FHA 3.5%? Maybe some key differences? Would it be a better low monthly mortgage ?

Hey! @Kevin Mejia 3% down Fannie/Freddie loans have always been around. Both have PMI. Fannie/Freddie PMI will drop of when you hit 80% LTV. FHA 3.5% works better if your credit is low and/or you need to push the DTI.

Originally posted by @Kevin Mejia :
I’ve been reading about new 3% down payment for first time homebuyers . Does anyone have any insight on it ? Is it better than the standard FHA 3.5%? Maybe some key differences? Would it be a better low monthly mortgage ?

Check the respective Interest Rates. If they're the same, then with 3% down you'd be paying more per month (because you'd be borrowing an extra half a percent of the purchase price)... 

@Kevin Mejia Under conventional loan with 3% down payment you pay monthly MI. In FHA you pay UFMIP fee for 1.75% of loan amount(one time) and monthly MI. Ask your lender to give you comparison for both product so you know the difference in saving wise.

The down payment is not as big of a difference, but knowing the other features and benefits would help you decide which one would be best suited for you.

FHA is much more forgiving when it comes to credit and debt to income ratios (DTI). So, if you are trying to stretch your income to afford the property, OR if your credit is not great, then this is the way to go.

They BOTH will have some type of mortgage insurance premium because they are under 80% LTV (Loan to Value). However, FHA has an upfront payment (that usually gets financed into your loan), AND a monthly amount that you make with your payment. It NEVER goes away (it used to, but now it stays there for the life of the loan). You pay for it until you either sell the house, refinance, or pay off the loan.

So, the FHA is usually more expensive (although some would argue that FHA rates are slightly lower). You will have to have your lender give you a side by side comparison to see which one works best for you (rates, fees, monthly payment).

I was at Santander Bank the other day and luckily they had a mortgage rep there . She was telling me about the 3% down with no PMI which sounded strange to me . I asked her if there was any catch to it and she said no . We didn’t get into a full on conversation I just passed by that day . Of course I’m looking for a low monthly payment so I can house hack my first duplex .

@Kevin Mejia

Not that many lenders will do the 3% down payment loan.

If you're borrowing more because you put less down, your monthly mortgage payment will be slightly higher. However, 0.5% difference in down payment % isn't that big of a deal. Maybe around $80-$100 more per month depending on the interest rate.

Minimal FICO is 620, but will likely be higher.

FHA minimum is 580 for 3.5% down, 10% down if your FICO is less than 580.

Most 3% down programs are the following, which wouldn't fit your scenario:

The mortgage is a fixed rate loan.

The property is one-unit single family home, co-op, PUD, or condo.

At least one buyer has not owned a home in the last three years.

The property will be the owner’s primary residence.

The loan amount is at or below $453,100

Also, if they don't have PMI, the rates are usually slightly higher.

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