The biggest obstacle to buying a home these days is money, both for down payment and closing costs. In fact, closing costs can many times exceed the down payment required. To help with this there are several different low and in some cases no down payment programs available. Some are limited to first time home buyers but many aren’t limited to first time buyers but do have income limitations. There is no right or wrong mortgage program. It is the one that fits your situation and needs. Here is an overview of the different programs available and some of the advantages and limitations of each one.
Lowest down payment– The loans guaranteed by the USDA have the lowest down payment requirement-none. There is no down payment required with the USDA loan but there are income and location restrictions. The maximum income varies by county and family size. There are location restrictions within counties. It is designed to help rural areas develop although the definition of rural is rather broad. Seller can pay up to 6% of price towards closing costs and if the property appraises for more than the sales price the loan can be increased to pay closing costs too. VA loans also do not require a down payment but are limited to veterans or the surviving spouse of a veteran.
Most flexible credit wise– FHA is the most flexible program for borrowers with lower credit scores. Also FHA will allow the seller to pay up to 6% of the price towards closing costs with the minimum 3.5% down payment. There are no income or first time buyer restrictions but the maximum mortgage is different for each county. FHA also has more stringent property requirements than conventional financing so not all properties will meet FHA requirements.
Most flexible property– Conventional financing is going to be the most flexible on the condition of the property and has some low down payment programs available. There are programs with as low as a 3% down payment and they allow the seller to pay up to 3% of the purchase price towards closing costs. These do have income restrictions that vary by county. In some instances the income limit can be waived for a first time buyer. Programs with no income or first time buyer restrictions require a 5% down payment.
In addition to these programs there are some local and state programs that will help with down payment and closing costs. These also have income and some have location restrictions. Monroe County offers a second mortgage program to help with down payment or closing costs. The mortgage can be for $10,000 or 10% of the purchase price whichever is less. This is a 0% interest second mortgage with no payment required. The loan must be paid off when the property is sold or the original first mortgage is refinanced.
The Pennsylvania Housing Finance Agency offers conventional, FHA , VA and USDA loans with an additional second mortgage for up to $6000 to help with closing costs and down payment. There are income and price restrictions inmost cases. They also offer a program for first time buyers but it has more stringent income and price limits. The first time buyer program offers a reduced rate and flexible guidelines. In addition with most of the PHFA programs a Mortgage Credit Certificate is offered to first time buyers. This allows the buyer to deduct up to $2000 per year directly off the Federal tax they owe.
For all of the programs discussed a first time buyer is considered anyone who has not owned a home in the past 3 years. There are exceptions in special circumstances.
As you can see there are many choices and considerations when looking at the various home financing options. The best suggestion is to find and work with a knowledgeable mortgage professional that you are comfortable with.
Thanks, Bill! Interested in discussing your options with a professional? Contact Bill directly
Bill Cullen of Homeside Financial
D 570. 218. 5801
M 570. 977. 3739
wcullen@gohomeside.com
Galligan Realty Group, The Jim & Amy Galligan Team for Keller Williams 570. 213. 4888 info@galliganrealtygroup.com