FHA Purchase Loan Alternatives

The FHA Purchase Loan is not your only option if you do not have a 20% down payment.  Most of the low down payment mortgage products offered today have some form of mortgage insurance.  Traditionally, if you put down less than 20% down payment you are required to pay mortgage insurance.  Mortgage insurance protects your lender in the event you default.  In the eyes of the lender, the less you put down the higher risk you become for a future default.

If you want to put down 3.5% of your purchase price as a down payment, the FHA Mortgage is still the best financing option for you.  If you are willing and able to put down 10% there are solutions that will eliminate monthly mortgage insurance altogether.

Option 1: 80/10/10.

Here’s a simple breakdown on how it works:

The 80- The first mortgage is considered the 80%.  Although you are not putting down 20%, the first lender is satisfied of the 20% down requirement.  Keep in mind that not all lenders allow for this program.  The bank has to agree to a second 10% lien.

The 10- The second mortgage is considered the 10%.  We provide a second home equity line of credit to satisfy the difference between your 10% down payment and your first lien.  The second mortgage is normally an equity line of credit that is tied to prime rate.

The other 10- The last 10 of the 80/10/10 is your 10% down payment.

Option 2: Single Premium Borrower Paid Mortgage Insurance

Borrower Paid Single Premium insurance requires a one time, single payment at closing.  Borrowers can finance the premium into the loan amount or pay it along with other closing costs.  The premium can also be paid for by a third party including a builder or seller.  After paying the single premium, you will not have to pay monthly mortgage insurance.

To learn more about single premium mortgage insurance you can visit the following mortgage insurance companies: MGIC, United Guaranty, and Genworth.

Your lender should make you aware of the above options as an alternative to FHA financing.  The more options you have as a consumer the better.  To learn more about your Purchase Financing Options contact Jason Katz.

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