3 Down Payment Tips to Share with Homebuyers

Do you have buyers that are wavering about how to finance their home? There are plenty of low down payment mortgage options that potential homeowners may consider, but deciding which of these options best fit their financial needs can be a bit more difficult. The good news is that with a continuously recovering real estate market, even more of these options are becoming available and they have you to help them make the best decision.

Here are just a few of the current financing options available to your clients and prospects:

• 0% down – VA and USDA Loans
• 3.5% down – FHA Loans
• 5% down – Conforming loans to $417,000
• 10% down – High Balance Conforming loans to $625,500
• 10% down – 80/10/10 loan to $1 million

Financing options like the ones mentioned above will be appealing to prospective buyers, because it will allow them to afford a larger home without putting as much down up front. Unfortunately, these options can be more expensive in the long run and it's important that you keep them informed on what to expect in the years to come.

1. Higher Interest Rates – Explain to your clients and prospects that the mortgage industry follows a risk-based pricing system. This means that as risk for the lender increases, the rates and fees your clients or prospects pay will also increase. A low down payment is a high risk for lenders, which is why FHA, VA and USDA loans apply either an upfront funding fee and/or mortgage insurance. Fannie Mae and Freddie Mac, who back up all conforming loans, will generally charge your clients a higher interest rate and/or fees when they have less than a 25% down payment. Depending on their credit score and other factors, rates can vary from .125% to .25% higher for a prospective buyer putting down 10% instead of 25%.