Best options for mortgage insurance for those with small down payments

By JEFF LAZERSON / CONTRIBUTING COLUMNIST

3/11/2016

Last week we learned that those with higher credit scores are seeing better mortgage insurance pricing.

This week, I help you meander the maze of private mortgage insurance menus, focusing on the most affordable mortgage-insured home loans for those with little money to put down.

Top of my list is Freddie Mac’s Home Possible. You can put as little as 3 percent down for loans up to $417,000 and have household income up to $95,060 for an Orange County home.

You can’t own any other residential dwelling. You will realize very limited pricing adjustments as Freddie has a cap for add-on pricing allowing credit scores all the way down to 620. And, anything less than 10 percent down allows you lower private mortgage insurance coverage compared to Freddie’s standard pricing.

HomeReady is Fannie Mae’s similar competing product. The key differences are Fannie’s income household cap is $67,900 for O.C. properties. Fannie does allow for boarder income and accessory dwelling unit income. And, with 5 percent down, Fannie allows non-occupant co-borrowers.

With Orange County being third worst region of the country in terms of homeownership affordability, I think you have a better shot at qualifying for something bigger than a shoebox with Freddie’s higher income cap.

Let’s assume you have a loan amount of $403,750 by putting 5 percent down on a $425,000 condo and you have a middle credit score of 680. Comparing a zero point Freddie Mac Home Possible program to standard Freddie pricing, both with private mortgage insurance, the monthly payment with Home Possible is $63 less.

If you don’t currently own any property, and you are under the income cap, make sure your lender offers Home Possible.

The lower your middle credit score is, starting under 680 and going lower from there, odds are FHA might have a better payment plan.

FHA does require at least 3.5 percent down. And if you are buying a condo, the complex must be FHA approved. FHA goes all the way down to a 580 mid-score with the minimum 3.5 percent down.

For example, take a 640 mid-score, FHA looks to be about 1 percent lower in total rate. That includes buying out the upfront one-time FHA mortgage insurance.

Pay your bills on-time. Work hard to improve your credit. Protect, cherish and maintain your excellent credit scores once you get them. The goal is 740 or higher to get you the most affordable home loans.

If you have questions or comments, please contact Jeff Lazerson by clicking here.