Buying a Home in Novi MI with Little or No Money Down in 2020 – For many first-time homebuyers, coming up with the down payment can be one of the biggest hurdles to buying a home in Novi MI. Even in a modest market, a traditional 20% down payment can easily amount to tens of thousands of dollars. The good news for homebuyers, with limited cash-on-hand for a down payment, is that there is a bevy of mortgage programs requiring little or no money down that are available to the general public.

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It’s actually a common misconception that “20% down” is required to buy a home. In today’s U.S. market it’s possible to buy a home with little or zero money down. FHA loans (3.5% down), USDA loans (0% down), VA loans (0% down),  HomeReady™ Mortgage (3% down), and Conventional 97 loan (3% down) offer no or low down payment options with a little as 3% down. Mortgage insurance premiums typically accompany low and no down payment mortgages, but not always.

Let’s unpack the no or low-money-down loan programs listed above and see if one is the right fit for you:

FHA LOANS

The FHA doesn’t actually make loans, it’s an insurer of loans. The FHA publishes a series of standards for the loans it will insure, and when a bank underwrites and funds a loan that meets there specific guidelines, the FHA agrees to insure that loan against loss. The FHA will typically insure a home loan for a borrower with low credit scores (500) so long as there’s a reasonable explanation for the low FICO. The FHA allows a down payment of just 3.5 percent in all U.S. markets.

Mortgage insurance premiums are paid upfront at closing, monthly thereafter. FHA’s 2019 minimum national loan limit, or floor, of $314,827 is set at 65% of the national conforming loan limit of $484,350. This floor applies to those areas where 115% of the median home price is less than the floor limit. Any area, where the loan limit exceeds this floor is considered a high-cost area, and FHA sets its ceiling for high-cost areas at 150% of the national conforming limit.

USDA LOANS

The U.S. Department of Agriculture offers a no-money-down or 100% financing mortgage. The program is formally known as a Section 502 mortgage, but, more commonly, it’s called a Rural Housing Loan. The USDA Rural Housing Loan is not just a rural loan and is available to buyers with low-to-moderate income in suburban neighborhoods as well. USDA Loans offer $0 money down, lenient eligibility requirements and competitive interest rates – due to the loan being guaranteed by the USDA.

Many people automatically assume that since the program is meant for low to medium-income borrowers, there’s a limit on what homes they can buy. However, the USDA doesn’t have set loan limits as with VA or FHA loans but bases the maximum loan amount on the borrower’s ability to qualify. Eligible borrowers will be hard-pressed to find a home loan program that offers more favorable terms.

VA LOANS

The VA loan is a no-money-down program available to members of the U.S. military and surviving spouses. VA loans are guaranteed by the U.S. Department of Veteran Affairs and are provided by private lenders such as banks and mortgage companies. VA guarantees a portion of the loan, enabling the lender to provide you with more favorable terms. The VA doesn’t approve the loan but establishes specific rules that lenders must follow in order to receive the VA guarantee.

One of those rules limits how much you can borrow based upon a formula called the debt to income ratio, or simply “debt ratio. Your VA debt ratio is a number expressed as a percentage and is calculated by dividing certain debt obligations by your gross monthly income. According to VA lending guidelines, $2010 is the maximum allowable amount you may have for a mortgage payment including principal and interest, taxes and insurance.

HOMEREADY™ MORTGAGES

HomeReady mortgages are a line of conventional home loans offered by Fannie Mae that are meant to help low and moderate-income borrowers buy or refinance. HomeReady loans reduce the typical down payment and mortgage insurance requirements and are also more flexible about allowing contributions from other people. This makes HomeReady an ideal choice if you’re relying on others to help fund your home purchase. Backed by Fannie Mae and available from nearly every U.S. lender, the HomeReady™ mortgage offers below-market mortgage rates, reduced mortgage insurance costs, and the income of everybody living in the home can be used to get mortgage-qualified and approved.

Designed to help multi-generational households get approved for mortgage financing. HomeReady™ home loans can be used by anyone in a qualifying area or who meets household income requirements. HomeReady Mortgage advantages include more affordable mortgage insurance premiums, lower down payment and credit score requirements, family or friends can co-sign on your home loan, and income from others living in your home can help you get approved. HomeReady mortgages provide the greatest benefit to people who plan to share the costs of the loan with other family members.

CONVENTIONAL 97 LOANS

Conventional 97 loans are a type of low down payment mortgage for first time home buyers or buyers that have not owned a home in the last 3 years. Borrowers only need to come up with a 3% down payment, which then creates a mortgage balance of 97% loan to value (LTV), hence “97” in the mortgage product’s name. This program is offered by Fannie Mae.  For many homebuyers, it’s a less-expensive option compared to an FHA loan. The Conventional 97 mortgage allows for its entire three percent downpayment to come from gifted funds, so long as the gifter is related by blood or marriage; or via legal guardianship or domestic partnership; or is a fiance/fiancee.

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With a Conventional 97 Loan, the loan size may not exceed $510,400, even if the home is in a high-cost market. The property must also be a single-unit dwelling, and the loan must be a fixed-rate mortgage (no ARMs). There is no specific minimum credit score beyond that for a typical conventional home loan.  The Conventional 97 program takes into account how much of a borrower’s monthly income goes toward paying debts. To qualify for the Conventional 97 program, your Debt-to-Income ratio (DTI) should not exceed 43%. This means all of your monthly debt payments, plus your expected mortgage payment, cannot exceed 43% of your gross income.

HOW MUCH HOME CAN YOU AFFORD?

If you are currently thinking about buying a home in Novi MI, you’ll want to determine how much home you can realistically afford. Start with your monthly budget and determine what you can comfortably pay for a home each month. Use one of the many free home-affordability calculators that are available online. By entering details about your income, down payment, and monthly debts, you can estimate the mortgage amount that works with your budget.

PARTNER WITH TOP-RATED NOVI MI REALTOR® – TOM GILLIAM

If you or someone you know is considering buying a home in Novi MI, please give top-rated Novi MI REALTOR® – Tom Gilliam a call today at 248-790-5594. Tom will put his knowledge, skills, dedication, and 20 years of experience to work for you!

Tom Gilliam, REALTOR®
RE/MAX Classic
29630 Orchard Lake Rd.
Farmington Hills 48334
Call: 248-790-5594
Office: 248-737-6800
Email: [email protected]
License #301741

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