Both 15-year fixed and 30-year fixed refinances saw their mean rates trail off this week. The average rates for 10-year fixed refinances also trailed off.
30 Year Fixed Refinance: 7.18%
15 Year Fixed Refinance: 6.41%
10 Year Fixed Refinance: 6.14%
Mortgage refinance rates have soared since early 2022 and millions of homeowners remain locked in to the lower fixed rates they secured years ago. With the Federal Reserve taking its third consecutive pause from its aggressive rate-hike policy, mortgage rates have finally started to ease, but they’re not expected to stabilize until next year.
Some homeowners who bought homes with rates near or above 8% could soon see substantial enough rate dips to consider refinancing, according to Matt Graham of Mortgage News Daily. “The best bet there is to keep an eye on day-to-day rate changes and have a game plan on how to capitalize on a big enough drop,” Graham said.
About these rates: Like CNET, Bankrate is owned by Red Ventures. This tool features partner rates from lenders that you can use when comparing multiple mortgage rates.
Refinance rates for homeowners
In today’s high-rate environment, refinancing is less attractive. The lowest rates advertised by lenders are currently around 7%, but your personal interest rate will depend on your credit history, financial profile and application.
Here’s are the average refinance rates reported by lenders across the country. We track refinance rate trends using information collected by Bankrate:
Today’s refinance rates
Product
Rate
A week ago
Change
30-year fixed refi
7.21%
7.57%
-0.36
15-year fixed refi
6.41%
6.80%
-0.39
10-year fixed refi
6.14%
6.85%
-0.71
Rates as of December 18, 2023.
How to choose a refinance
When you refinance your mortgage, you take out another home loan that pays off your initial mortgage. With a traditional refinance, your new home loan will have a different term and/or interest rate. With a cash-out refinance, you’ll tap into your equity with a new loan that’s bigger than your existing mortgage balance, allowing you to pocket the difference in cash.
Refinancing can be a great move if you score a low rate or manage to pay off your home loan in less time, but consider whether it’s the right choice for you at the moment. If you can reduce your interest rate by 1% or more, that could be enough financial incentive to refinance. Yet given elevated rates, you probably won’t be able to secure a significantly lower rate than your current one. If you decide to refinance, compare rates, fees and the annual percentage rate — which reflects the total cost of borrowing — from different lenders to find the best deal.
30-year fixed-rate refinance
The average rate for a 30-year fixed refinance loan is currently 7.21%, a decrease of 36 basis points from what we saw one week ago. (A basis point is equivalent to 0.01%.) A 30-year fixed refinance will typically have lower monthly payments than a 15-year or 10-year refinance, but it will take you longer to pay off and typically cost you more in interest over the long term.
15-year fixed-rate refinance
The average 15-year fixed refinance rate right now is 6.41%, a decrease of 39 basis points from what we saw the previous week. Though a 15-year fixed refinance will most likely raise your monthly payment compared to a 30-year loan, you’ll save more money over time because you’re paying off your loan quicker. Also, 15-year refinance rates are typically lower than 30-year refinance rates, which will help you save more in the long run.
10-year fixed-rate refinance
The current average interest rate for a 10-year refinance is 6.14%, a decrease of 71 basis points over last week. A 10-year refinance typically has the lowest interest rate but the highest monthly payment of all refinance terms. A 10-year refinance can help you pay off your house much quicker and save on interest, but make sure you can afford the steeper monthly payment.
Where will refinance rates end up?
When mortgage rates hit historic lows during the pandemic, there was a refinancing boom, as homeowners were able to nab lower interest rates. But with current average rates above 7%, getting a new home loan isn’t as financially viable.
Refinancing activity has picked up since last year, but the overall level of refinance applications is still very low in comparison with early 2021.
When should I refinance?
Homeowners usually refinance to save money, but there are other reasons to do so. Here are the most common reasons homeowners refinance:
To get a lower interest rate: If you can secure a rate that’s at least 1% lower than the one on your current mortgage, it could make sense to refinance.
To switch the type of mortgage: If you have an adjustable-rate mortgage and want greater security, you could refinance to a fixed-rate mortgage.
To eliminate mortgage insurance: If you have an FHA loan that requires mortgage insurance, you can refinance to a conventional loan once you have 20% equity.
To change the length of a loan term: Refinancing to a longer loan term could lower your monthly payment. Refinancing to a shorter term will save you interest in the long run.
To tap into your equity through a cash-out refinance: If you replace your mortgage with a larger loan, you can receive the difference in cash to cover a large expense.
To take someone off the mortgage: In case of divorce, you can apply for a new home loan in just your name and use the funds to pay off your existing mortgage.
How to find personalized refinance rates
The rates advertised online often require specific conditions for eligibility. Your personal interest rate will be influenced by market conditions as well as your specific credit history, financial profile and application. Having a high credit score, a low credit utilization ratio and a history of consistent and on-time payments will generally help you get the best interest rates. To get the best refinance rates, make your application as strong as possible by getting your finances in order, using credit responsibly and monitoring your credit regularly. And don’t forget to speak with multiple lenders and shop around.
Refinancing can be a great move if you get a good rate or can pay off your loan sooner, but consider whether it’s the right choice for you at the moment.
FHA loans and conventional loans are both issued by private lenders, but FHA loans are insured by the federal government, and conventional loans are not.
Due to their federal backing, FHA loans have more lenient criteria, making them better suited for borrowers with lower credit scores or who don’t have much money for a down payment.
Conventional loans require a higher credit score and stronger financials, but also come with lower costs, less-stringent home appraisals and cancellable mortgage insurance.
If you’re getting ready to buy a house, you have a lot of decisions to make. The same way that you can explore types of properties, you can (and should) explore different types of mortgages. The two most popular kinds of mortgages are conventional loans and FHA loans. Here, we’ll help you decide which might be better for your needs and situation.
Comparing FHA and conventional loans
Both FHA loans and conventional loans are mortgages originated by and issued through private lenders that allow you to finance the purchase of a home.
Conventional loans are what most people think of when they envision a mortgage. They are available through the majority of mortgage lenders in the U.S. — including banks, credit unions, savings and loan institutions and online mortgage companies — and can come in a range of terms, commonly 15 or 30 years, with a fixed or adjustable interest rate. They are not backed or guaranteed in any way by the government: The lender bears all the risk of the debt.
In contrast, FHA loans are insured by the Federal Housing Administration (FHA) and are geared toward homebuyers who might have difficulty obtaining conventional loan financing, primarily by requiring a lower minimum credit score, a smaller down payment, and other flexible qualification standards.
There are also substantial differences in loan limits, mortgage insurance terms and conditions, and debt-to-income maximum ratios. More on all that below.
Understanding FHA loans
FHA loans are insured by the FHA, a division of the U.S. Department of Housing and Urban Development — meaning, it will compensate the lender in case the borrower defaults. In return, the lender follows FHA’s more lenient underwriting criteria, allowing borrowers with lower credit scores to obtain approval, and requiring smaller down payments (usually between 3.5 and 10 percent of a home’s purchase price.)
Other than that, FHA loans work like most other mortgages, with either a fixed or adjustable interest rate and a loan term for a set number of years. FHA loans come with two term options: 15 years or 30 years. They do require you to pay mortgage insurance premiums (MIP) regardless of your down payment amount.
Understanding conventional loans
Conventional loans don’t have government backing. This means the underwriting criteria for approval are stricter, and you must have a higher credit score (at least 620) to qualify. Also, a 20 percent down payment tends to be the standard, though some lenders will allow smaller amounts. If you do put less than 20 percent down, the lender is likely to charge you private mortgage insurance until you are halfway through your loan term.
Depending on the characteristics of the loan, a conventional mortgage is either conforming or nonconforming. Often, conventional lenders sell these types of mortgages to Fannie Mae or Freddie Mac, the secondary mortgage market-makers, after they’re funded. In order to do this, the loan has to conform to, or meet, Fannie and Freddie standards around loan size, borrower financials, and other factors. If it doesn’t, the mortgage is considered nonconforming.
FHA vs. conventional loan requirements
FHA loans
Conventional loans
Credit score minimum
580 (with 3.5% down) or 500 (with 10% down)
620
Debt-to-income (DTI) maximum
50%
43%
Down payment minimum
3.5% (with a 580 credit score) or 10% (with a 500 credit score)
3% for fixed-rate loans or 5% for adjustable-rate loans
Loan limits
$498,257 in most areas
$766,550 in most areas
Mortgage insurance
Mortgage insurance premiums (MIP) required on loans with less than 20% down; unremovable
Private mortgage insurance (PMI) required on loans with less than 20% down; removable
Interest rates
FHA loan rates
Conventional loan rates
FHA vs. conventional credit score requirements
FHA loan borrowers can qualify with a credit score as low as 500 or 580 depending on their down payment amount: as low as 500 with 10 percent down, or as low as 580 with 3.5 percent down. Conventional loans require a credit score of at least 620. If you have excellent or good credit, a conventional loan is often the better choice.
FHA vs. conventional DTI ratio requirements
Another FHA vs. conventional loan differentiator: the debt-to-income (DTI) ratio maximum. This ratio is the measure of all your debt (the mortgage included) relative to your monthly income. For a conforming conventional loan, the maximum DTI ratio is 43 percent. For an FHA loan, the DTI ratio can go up to 50 percent.
FHA vs. conventional down payment requirements
Depending on the lender and program, some conventional loans require as little as 3 percent or 5 percent for a down payment. However, 20 percent is usually the standard amount; many lenders won’t finance more than 80 percent of the home’s price.
In contrast, small down payments are more the norm with FHA loans. If your credit score is at least 580, you can put down just 3.5 percent for an FHA loan; if your score is below 580 (but not lower than 500), you’ll be required to put down 10 percent. Here’s more on minimum down payment requirements.
FHA vs. conventional loan limits
Depending on your location, choosing between an FHA versus conventional loan might come down to the price of the house you want to buy.
Both types of loans have limits on the amount you can borrow. The conventional conforming loan limit, set by the Federal Housing Finance Agency each year, starts at $766,550 in 2024 and goes up to $1,149,825 in more costly housing markets. A conventional loan can exceed these limits, but at that point, it’d be considered a nonconforming jumbo loan.
The FHA loan limit is also adjusted each year, and there are different limits based on location and property type. In 2024, the FHA loan limit for a single-family home is $498,257 in most markets and goes up to $1,149,825 in higher-cost areas.
FHA vs. conventional mortgage insurance
If you don’t have 20 percent of the home’s purchase price for a down payment, you’ll be required to pay for mortgage insurance whether you’re getting a conventional or FHA loan. Both premiums are typically paid via your monthly mortgage payment.
FHA mortgage insurance includes an upfront premium equal to 1.75 percent of the amount you’re borrowing. Then, you’ll pay an annual premium, which is determined by the size of your down payment, how much you borrowed and the length of the loan (15 years versus 30 years).
Aside from differences in premium structure, conventional loan borrowers don’t have to pay for mortgage insurance forever — it can be canceled halfway through a loan term, or once the borrower achieves 20 percent equity (outright ownership) in the home. You can achieve this simply by following your repayment schedule to pay down the loan balance, making extra payments, or refinancing or getting a new appraisal if your home’s value has risen substantially.
In contrast, FHA mortgage insurance can’t be canceled unless you put at least 10 percent down (if so, it’ll end after 11 years), or you refinance to a different type of loan.
FHA vs. conventional appraisal process
When financing your home through a conventional mortgage, your lender requires a home appraisal. They mandate this estimation of the home’s value to ensure it is worth the amount of money they’re extending to you.
Meanwhile, FHA lenders require a more thorough process relating to appraisals, including assessing value and the condition of the property to ensure it’s HUD- compliant. This can hurt your chances of buying a home, since listing agents might suggest their sellers look elsewhere given the time it takes to do an FHA appraisal. Also, sellers must disclose any significant inspection findings to other prospective buyers.
FHA vs. conventional interest rates
With both types of loans, the lender sets the interest rate, determined primarily by your credit score. FHA loans sometimes have more favorable interest rates than conventional loans — but the difference is often offset by the greater number of fees, including the MIP charges, that they have. In fact, the FHA loan’s annual percentage rate (APR), which includes both the cost of the interest rate and all the fees, might actually be higher than that of a comparable conventional loan.
Should you get an FHA loan or conventional loan?
Which loan is better: FHA or conventional? To a large extent, that depends on you. If your credit score is below 620, a loan backed by the FHA might be your only option. It might also be a better deal if you can’t manage a 20 percent down payment, which — given the current $431,000 median price tag on homes — can be over $85,000.
Generally, a conventional loan is best for those with strong credit and a bigger home buying budget. Ultimately, the decision comes down to the type of home you want, your finances and how much of your funds you want to tie up in real estate.
MGIC Investment Corp, the leading U.S. mortgage insurer, posted a larger-than-expected $1.47 billion fourth quarter loss as more homeowners fell behind on their mortgage payments.
The company lost $18.17 per share, much higher than the $8.13 per share analysts polled by Reuters had expected, and a far cry from profit of $121.5 million, or $1.47 per share, a year earlier.
For the entire year, MGIC lost $1.67 billion, or $20.54 per share, as claims almost quadrupled to $2.37 billion from $613.6 million.
Revenue for the fourth quarter was $399.1 million, up 8.7 percent from $367.2 million a year ago.
Net premiums written increased nearly 25 percent to $380.5 million during the quarter, up from $367.1 million in the same quarter in 2006.
New insurance written was $76.8 billion, compared to $58.2 billion in 2006, with $211.7 billion primary insurance in force at the end of 2007, compared with $176.5 billion the previous year.
MGIC said claims totaled $1.35 billion during the fourth quarter, up from $187.3 million a year earlier and $50 million more than it had estimated last month, with larger losses realized in places like Florida and California.
It also set aside $1.2 billion for losses related to securitizations and took a $33 million charge for collapsed subprime mortgage venture C-BASS.
The company also revealed that it had hired an advisor to explore ways to shore up capital, but noted that it has “adequate” capital to meet its claim obligations.
Starting March 3, MGIC will require at least 5 percent down on homes in so-called restricted markets, including entire states like Arizona, California, Florida and Nevada.
It’s been a terrible year for mortgage insurers, as both Radian and Milwaukee-based MGIC recorded their first ever quarterly losses.Shares of MGIC fell $2.07, or 14.60%, to $12.11 in early afternoon trading on Wall Street.
Mortgage insurance is typically required by mortgage lenders when the loan-to-value exceeds 80 percent.
Mortgage interest rates are down over the past week, marking the sixth straight week of rates decreasing. This decline is promising for prospective homebuyers, though interest rates lowering more will depend on Federal Reserve decisions and other economic factors.
The 30-year fixed mortgage rate is 7.03% for the week ending December 7, 2023, according to data from Freddie Mac. This represents a decrease of -0.19% from a week ago.
The 15-year fixed rate mortgage stands at 6.29%. That’s -0.27% lower than a week prior. At that rate, you’ll pay $860 per month in principal and interest for every $100,000 you borrow.
The rate you’ll actually receive will vary based on the price of the home you’re buying, your credit history, and the size of the down payment you’re making. You can compare the offers below to find your best rate.
High interest rates are sticking around as central banks around the world, including the Fed, battle stubbornly high inflation with a series of aggressive interest rate hikes. These efforts to rein in prices have also slowed global economic growth and fueled recession fears.
Geopolitical tensions stemming from the ongoing war in Ukraine and conflict in the Middle East have further clouded the economic outlook.
As the Fed asserts that more rate hikes are likely needed to tame inflation, analysts expect mortgage rates will continue trending upward in the near term. This could place even more affordability pressure on the housing market, especially impacting first-time homebuyers.
Why shop around for mortgage rates?
Getting the lowest mortgage rate possible can save you tens of thousands of dollars over the lifetime of your home loan. With rates on the rise in 2023, it’s more important than ever to understand the factors impacting mortgage rates, strategically shop for the best deal, and meet lenders’ requirements to qualify for the lowest rate.
This guide will cover everything you need to know about today’s mortgage rates, from how they’re determined to where experts expect them to go in the months ahead.
What impacts mortgage rates
Mortgage rates tend to follow the direction of long-term government bond yields, especially the yield on 10-year Treasury notes. Here are some of the key factors that can influence fluctuations in these yields and mortgage rates:
Federal Reserve policy: When the Fed raises its benchmark federal funds rate, it often leads to higher borrowing costs across the economy, including mortgage rates. The Fed began aggressively hiking rates in 2022 to combat high inflation, causing mortgage rates to soar. Further Fed rate hikes are expected through 2023.
Economic growth and inflation: Strong economic growth and rising inflation generally lead to higher mortgage rates, while slower growth and disinflation place downward pressure on rates.
Geopolitical events: Global conflict or political turmoil often spur investors to move money into safe haven assets like Treasury bonds, lowering yields and mortgage rates.
Investor demand: Strong demand for mortgage-backed securities from investors leads to lower mortgage rates. When demand falls, rates tend to rise.
Employment trends: A strong job market can fuel economic growth and push rates higher. Conversely, weak hiring data or increased unemployment tend to cause lower yields and rates.
Housing market trends: When housing demand is high, rates tend to rise as lenders face increased demand for mortgages. But lower demand for homes often correlates with declining mortgage rates.
Tips for finding the lowest mortgage rate
When shopping for a home loan, following these tips can help ensure you lock in the lowest possible mortgage rate:
Check rates from multiple lenders: Rates vary by lender, so comparing quotes from several lenders ensures you don’t overpay. Online rate comparison sites can give you a quick overview of prevailing rates.
Improve your credit score: Work on raising your credit score to at least 740, which will qualify you for the best mortgage terms. Pay down debts, correct any errors on your credit reports, and avoid taking on new debt before applying for a mortgage.
Lower your debt-to-income ratio: Lenders look closely at your existing debts in relation to your income. Paying down credit cards and other debts before applying for a mortgage can help lower your DTI and qualify for better rates.
Make a sizable down payment: Down payments of 20% or more of the home’s purchase price result in the best mortgage rates and eliminate the need to pay private mortgage insurance.
Compare quotes for 15-year and 30-year terms: In general, 15-year mortgage rates are lower than those on 30-year mortgages. But the higher monthly payment on a 15-year loan may not fit your budget.
Lock in your rate: Rates fluctuate daily. Once you find the rate you want, lock it in by completing most of the mortgage application paperwork. This protects you if rates rise further before closing.
Minimum requirements for common mortgage types
Mortgage lenders weigh many factors when reviewing applications, but most have basic requirements borrowers must meet to qualify for certain loans. Here are typical minimum standards for popular mortgage types.
Mortgage rates over the past three years
Mortgage rates have seen significant fluctuations over the past few years:
2020: Historic lows due to the COVID-19 pandemic. The average 30-year fixed rate mortgage fell below 3% by the end of 2020.
2021: Rates remained very low early in 2021, then began to rise in the spring. By December 2021, rates returned to pre-pandemic levels around 3.5%.
2022: The Fed’s rate hikes and inflation drove mortgage rates dramatically higher throughout 2022. Rates soared above 7% in late 2022 from around 3% at the beginning of the year.
2023: Rates are projected to remain elevated in 2023 compared to the past decade. Further Fed rate hikes could push averages above 8%.
The chart below shows average rates for the 30-year and 15-year fixed rate mortgages over the past three years.
The takeaway is that mortgage rates shift constantly in response to economic or political factors. Staying informed and timing your purchase to lock in a lower rate can make a huge difference in how much home you can afford. Casting a wide net when shopping for lenders pretty much guarantees you’ll secure the most competitive rate on your loan.
Methodology
Mortgage rate data comes from Freddie Mac, a government-sponsored leader in the housing industry that tracks average mortgage rates. We considered average rates for both the 30-year fixed rate mortgage and 15-year fixed rate mortgage. Freddie Mac rates exclude additional fees and points.
Average rates are reported weekly on Thursdays and updated accordingly.
This article is not intended to be financial advice. Before making significant financial decisions, you can review your options with a financial advisor or credit counselor.
Mortgage interest rates are down over the past week, marking the sixth straight week of rates decreasing. This decline is promising for prospective homebuyers, though interest rates lowering more will depend on Federal Reserve decisions and other economic factors.
The 30-year fixed mortgage rate is 7.03% for the week ending December 7, 2023, according to data from Freddie Mac. This represents a decrease of -0.19% from a week ago.
The 15-year fixed rate mortgage stands at 6.29%. That’s -0.27% lower than a week prior. At that rate, you’ll pay $860 per month in principal and interest for every $100,000 you borrow.
The rate you’ll actually receive will vary based on the price of the home you’re buying, your credit history, and the size of the down payment you’re making. You can compare the offers below to find your best rate.
High interest rates are sticking around as central banks around the world, including the Fed, battle stubbornly high inflation with a series of aggressive interest rate hikes. These efforts to rein in prices have also slowed global economic growth and fueled recession fears.
Geopolitical tensions stemming from the ongoing war in Ukraine and conflict in the Middle East have further clouded the economic outlook.
As the Fed asserts that more rate hikes are likely needed to tame inflation, analysts expect mortgage rates will continue trending upward in the near term. This could place even more affordability pressure on the housing market, especially impacting first-time homebuyers.
Why shop around for mortgage rates?
Getting the lowest mortgage rate possible can save you tens of thousands of dollars over the lifetime of your home loan. With rates on the rise in 2023, it’s more important than ever to understand the factors impacting mortgage rates, strategically shop for the best deal, and meet lenders’ requirements to qualify for the lowest rate.
This guide will cover everything you need to know about today’s mortgage rates, from how they’re determined to where experts expect them to go in the months ahead.
What impacts mortgage rates
Mortgage rates tend to follow the direction of long-term government bond yields, especially the yield on 10-year Treasury notes. Here are some of the key factors that can influence fluctuations in these yields and mortgage rates:
Federal Reserve policy: When the Fed raises its benchmark federal funds rate, it often leads to higher borrowing costs across the economy, including mortgage rates. The Fed began aggressively hiking rates in 2022 to combat high inflation, causing mortgage rates to soar. Further Fed rate hikes are expected through 2023.
Economic growth and inflation: Strong economic growth and rising inflation generally lead to higher mortgage rates, while slower growth and disinflation place downward pressure on rates.
Geopolitical events: Global conflict or political turmoil often spur investors to move money into safe haven assets like Treasury bonds, lowering yields and mortgage rates.
Investor demand: Strong demand for mortgage-backed securities from investors leads to lower mortgage rates. When demand falls, rates tend to rise.
Employment trends: A strong job market can fuel economic growth and push rates higher. Conversely, weak hiring data or increased unemployment tend to cause lower yields and rates.
Housing market trends: When housing demand is high, rates tend to rise as lenders face increased demand for mortgages. But lower demand for homes often correlates with declining mortgage rates.
Tips for finding the lowest mortgage rate
When shopping for a home loan, following these tips can help ensure you lock in the lowest possible mortgage rate:
Check rates from multiple lenders: Rates vary by lender, so comparing quotes from several lenders ensures you don’t overpay. Online rate comparison sites can give you a quick overview of prevailing rates.
Improve your credit score: Work on raising your credit score to at least 740, which will qualify you for the best mortgage terms. Pay down debts, correct any errors on your credit reports, and avoid taking on new debt before applying for a mortgage.
Lower your debt-to-income ratio: Lenders look closely at your existing debts in relation to your income. Paying down credit cards and other debts before applying for a mortgage can help lower your DTI and qualify for better rates.
Make a sizable down payment: Down payments of 20% or more of the home’s purchase price result in the best mortgage rates and eliminate the need to pay private mortgage insurance.
Compare quotes for 15-year and 30-year terms: In general, 15-year mortgage rates are lower than those on 30-year mortgages. But the higher monthly payment on a 15-year loan may not fit your budget.
Lock in your rate: Rates fluctuate daily. Once you find the rate you want, lock it in by completing most of the mortgage application paperwork. This protects you if rates rise further before closing.
Minimum requirements for common mortgage types
Mortgage lenders weigh many factors when reviewing applications, but most have basic requirements borrowers must meet to qualify for certain loans. Here are typical minimum standards for popular mortgage types.
Mortgage rates over the past three years
Mortgage rates have seen significant fluctuations over the past few years:
2020: Historic lows due to the COVID-19 pandemic. The average 30-year fixed rate mortgage fell below 3% by the end of 2020.
2021: Rates remained very low early in 2021, then began to rise in the spring. By December 2021, rates returned to pre-pandemic levels around 3.5%.
2022: The Fed’s rate hikes and inflation drove mortgage rates dramatically higher throughout 2022. Rates soared above 7% in late 2022 from around 3% at the beginning of the year.
2023: Rates are projected to remain elevated in 2023 compared to the past decade. Further Fed rate hikes could push averages above 8%.
The chart below shows average rates for the 30-year and 15-year fixed rate mortgages over the past three years.
The takeaway is that mortgage rates shift constantly in response to economic or political factors. Staying informed and timing your purchase to lock in a lower rate can make a huge difference in how much home you can afford. Casting a wide net when shopping for lenders pretty much guarantees you’ll secure the most competitive rate on your loan.
Methodology
Mortgage rate data comes from Freddie Mac, a government-sponsored leader in the housing industry that tracks average mortgage rates. We considered average rates for both the 30-year fixed rate mortgage and 15-year fixed rate mortgage. Freddie Mac rates exclude additional fees and points.
Average rates are reported weekly on Thursdays and updated accordingly.
This article is not intended to be financial advice. Before making significant financial decisions, you can review your options with a financial advisor or credit counselor.
Military service to your country is rewarded with an exclusive benefit to foster homeownership. A VA loan is unlike any other mortgage on the market, offering a home loan with no down payment, limited closing costs, and no private mortgage insurance.
However, VA loans are offered only to those who have served in the military.
It’s a well-deserved and valuable advantage to maximize home affordability, especially for a first-time home buyer. This is how the program works and what it takes to qualify for a VA home loan in 2024.
Read more: How to buy a house in 2024
What is a VA home loan?
VA loans are issued by private mortgage lenders, including banks, credit unions, or mortgage providers, but are administered by the Department of Veterans Affairs, which guarantees a portion of the loan. That guarantee allows lenders greater flexibility in structuring the loan terms used to finance the purchase of a single-family home, condominium, multi-unit property, manufactured house, or new construction.
Current service members, veterans, and eligible surviving spouses may qualify for a VA loan.
Read more: How much house can I afford?
How a VA loan works
Most (90%) VA home loans are made without a down payment. The VA doesn’t require a down payment, but lenders can add loan requirements to manage their credit risk. It’s the same with credit scores: The VA doesn’t set a minimum qualifying credit score for a home loan, but lenders often do.
Tip: These “lender overlays” — qualifying requirements beyond those specified by a guarantor — are a primary reason for borrowers to shop multiple lenders. According to the CFPB, borrowers could save $100 a month or more by shopping for the best mortgage deal.
Read more: What all the best mortgage lenders have in common
Generally, the benefits of a VA loan for a borrower with full entitlement include:
No down payment.
No loan limit.
Fewer closing costs. Lenders are limited to the amount they can charge, and according to the VA, closing costs “may be paid by the seller, lender, or any other party.”
No private mortgage insurance (PMI).
The flexibility to purchase and fund repairs that are completed after closing.
The VA funding fee
One cost unique to a VA loan that shouldn’t be overlooked is the VA funding fee. It is not insignificant and can blindside a borrower.
The VA funding fee is typically 1.40% to 2.30% of the loan amount for the first-time use of a purchase loan. It can be paid in cash at closing, financed as part of the loan, or paid by the lender or home seller as a concession.
There can be exemptions for the payment of the funding fee, including for certain veterans with a service-connected disability and for some unremarried surviving spouses of veterans.
Read more: Why a mortgage pre approval matters so much in 2024
How to qualify for a VA loan
Lenders may stipulate how much you can borrow, but the VA does not have specified loan limits for borrowers with a full entitlement. And while there is no minimum-income requirement, the VA needs proof that you will have “income remaining after paying your mortgage and other financial obligations.”
The home being financed must be your primary residence, and you must meet one of the following:
An active-duty service member. The minimum active-duty-service requirements depend on when you served.
A veteran of the armed forces, including Reserve and National Guard members.
An eligible spouse.
There are quite a few qualifiers to the above standards. Here is a complete list of service requirements. Even if it seems you don’t meet the minimum-service requirements, be sure to examine the details of active-service and veteran qualifications.
Particular circumstances of a discharge can also qualify you for a VA loan.
Certificate of Eligibility (COE)
You will need to provide proof of your qualifications for a VA mortgage. That is supplied with a Certificate of Eligibility. Approved VA lenders will have access to an online tool that can provide the information within minutes. You can also get a COE online at VA.gov or submit a VA Form 26-1880 via mail.
Lender loan requirements
Specific loan-eligibility requirements vary by lender, but generally, VA loans require a borrower to:
Meet a minimum credit score requirement. The VA does not set this, and it varies by lender. While FICO 620 is often mentioned as the preferred entry-level credit score, Yahoo Finance found minimum credit scores at a sampling of major VA lenders to be 550, 580, and 600.
Fall within certain debt-to-income limits. The VA also doesn’t mandate a maximum debt-to-income ratio, but lenders often look for a DTI of less than 50%.
Read more: The credit score needed to buy a house in 2024
Pros and cons of VA loans
Pros
No down payment is required.
You have the option to use an adjustable rate mortgage.
No PMI.
Closing costs are capped and some fees may be paid by others.
The news many American homeowners and homebuyers have been waiting for is starting to arrive.
Mortgage interest rates are coming down again, albeit not in a major way. Still, any drop is a welcome one, particularly after they hit the highest point since 2000 earlier in 2023. As of December 8, 2023, the average mortgage rate for a 30-year loan is 7.41% while the average 15-year refinance rate is 6.69%. While these pale in comparison to the rates buyers and owners could have secured just a few years ago, they’re still heading in the right direction. Just look at the beginning of November when the 30-year loan rate was 8.06% and the 15-year refi rate was 7.20% for confirmation.
Against this backdrop, many current owners may be wondering if now is the time to refinance their existing homes. While mortgage refinancing may not be for everyone, there are some major signs to look for that could indicate it’s the right time for you to act. Below, we’ll break down three big signs it’s time to refinance now.
Not sure what mortgage refinance rate you’d qualify for? Find out here now.
3 big signs it’s time to refinance your mortgage
Does a mortgage refinance make sense for you now? Here are three major signs it may be time to get started.
You can get a lower interest rate than what you already have
While a 6.69% refinance rate isn’t considered a bargain by many (particularly when they were under 2% just a few years ago), it could be lower than what you currently have. If you have an adjustable-rate mortgage (ARM) currently, for example, you could be paying more than that. So by refinancing, you’ll save money that otherwise would have been going to interest. That said, there are a few caveats to be aware of.
First, make sure that the new rate is at least one point lower than your existing one. Many experts don’t recommend making the switch if the difference isn’t at least that large. Secondly, you’ll want to make sure that you can afford a larger payment. By refinancing into a shorter term, your loan will become condensed and your payments will increase, even at a lower rate. So crunch the numbers before proceeding — or look at refinancing into a 30-year loan instead. Finally, be sure that you’re planning on staying in the home long enough to recoup the closing costs required to refinance. If you’re not, it doesn’t make sense to act, even if you could get some short-term relief.
Explore your mortgage refinancing options here to see if it’s right for you.
You want to get rid of the loan sooner
Let’s say you recently inherited a large sum of money or your job situation has changed dramatically. In these instances, and some others, you may want to pay down your existing debt quicker. And with mortgages being some of the biggest monthly payments Americans have, it makes sense to look to a refinance.
By refinancing to a shorter time frame, you’ll have larger payments to make now, but for a much shorter period than you would have if you kept your loan on the current pace. Plus, you’ll save significant sums of money that otherwise would have gone to the lender in the form of interest.
Your finances have changed
Your finances may have changed since you first took out your loan. If you received an adjustable-rate mortgage, for instance, you may have since seen your interest rate increase significantly. In this case, you may want to refinance to a lower, fixed rate instead.
It’s also possible that you put a down payment of less than 20% when purchasing your home, thus mandating a private mortgage insurance (PMI) payment to the lender. But if you’ve since accumulated that 20% in equity (and you probably have, since millions of homeowners now have hundreds of thousands of dollars worth of usable equity), then it may make sense to refinance and have the PMI dropped.
Only you will know which circumstances apply and which ones don’t. Take a closer look at your mortgage loan and paperwork and crunch the numbers to see. You may be surprised at what you could save by acting now.
The bottom line
While a mortgage refinance can make sense for many in a low-rate environment, it may not be as beneficial now, even if rates are dropping in a favorable direction. That said, it can make sense to act now if by refinancing you can get your rate lowered by one point (or more). It may also be helpful to refinance to a shorter term if your goal is to rid yourself of the loan as soon as possible. And if your finances have since changed — your ARM rate has gone up or you’re still paying PMI when you don’t need to — it may be a sign that a refinance is right for you. As with all personal financial decisions, be sure to crunch the numbers carefully and review your budget before acting. By doing so, you’ll know if a mortgage refinance really makes sense for you now, or if it just appears that way.
Learn more here now.
Matt Richardson
Matt Richardson is the managing editor for the Managing Your Money section for CBSNews.com. He writes and edits content about personal finance ranging from savings to investing to insurance.
Whether you’re a first-time homebuyer or selling and moving into a new house, you will most likely need to take out a home loan to finance your purchase. But choosing a loan can be more complicated than simply picking one off a list — there are myriad considerations that go into selecting and getting approved for the right mortgage.
Military members and veterans can take out a VA loan, which offers advantages like 0% down and no minimum credit score requirement. Still, it’s important to look into the specifics of VA loans and cross-compare with conventional loans to determine the best option for you and whether you should shop around for the best mortgage lenders or the best VA lenders.
This guide will break down the ins and outs of VA and conventional loans, explain their differences and help VA-qualifying homebuyers decide what type of loan to choose.
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What is a conventional loan?
Conventional home loans are any type of mortgage not backed or insured by a government agency like the Federal Housing Administration or the Department of Veterans Affairs. They’re offered by private lenders like banks and mortgage companies, and they typically require a down payment between 3% and 20% of a home’s sale price.
Two government-sponsored enterprises (GSE), Fannie Mae and Freddie Mac, set the guidelines and requirements for conventional loans. Conventional loans will usually require a strong credit history and score — as well as a certain income and stable finances — for borrowers to qualify for competitive interest rates and terms. Borrowers may have more flexibility when it comes to property type and loan amounts compared to government-backed loans.
Types of conventional loans
There are several types of conventional home loans to consider, each with its own terms and requirements.
Conforming vs. non-conforming loans
Conforming home loans have lending criteria set by Fannie Mae and Freddie Mac. These guidelines can include factors like credit and income requirements, down payment minimum, debt-to-income ratios, and more.
Conforming loans usually have lower interest rates because lenders consider them lower risk for their strict standard lending criteria. GSEs set a maximum limit on conforming loans, which can vary depending on location.
Non-conforming loans don’t adhere to the criteria established by Fannie Mae and Freddie Mac. These loans have higher maximum loan limits than conforming loans, often making them necessary for larger loan amounts. For instance, “jumbo loans” are a common type of nonconforming loan for properties that exceed the maximums set by GSEs.
Interest rates are generally higher for non-conforming loans because they are riskier for lenders, who may also demand a bigger down payment than they would for a conforming loan. Eligibility for non-conforming loans can be more flexible and they’re often underwritten manually, which means an underwriter will evaluate your documents and verify whether you’re qualified to borrow.
Fixed-rate vs. adjustable-rate loans
When choosing a home loan, you’ll also have to decide between a fixed-rate loan or an adjustable-rate loan (ARM). Your selection will depend on your financial situation, risk tolerance, and how long you expect to live in the home you purchase.
A fixed-rate loan (aka fixed-rate mortgage) stays the same throughout the entire term, while an ARM’s interest rate can change at designated points of a loan’s term after an initial fixed-rate period. Fixed-rate loans offer more stability, which can help you plan out your expenses and budget more easily. When interest rates are low, they allow borrowers to lock in a favorable rate for the long term.
ARMs often have lower initial interest rates, which means your monthly payments will also be lower during the fixed-rate period. However, interest rate adjustments are unpredictable, and those payments may increase, resulting in higher housing costs.
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VA loans explained
VA loans are specifically designed to provide active-duty military, veterans and eligible spouses assistance in purchasing or refinancing a home. They’re backed by the U.S. Department of Veterans Affairs and offer various benefits, but you have to meet specific service requirements and provide a Certificate of Eligibility from the VA.
Key differences between a VA loan vs a conventional loan
There are a few advantages to VA loans, like a $0 down payment and competitive interest rates for eligible veterans and military personnel. While conventional loans are more widely available, you normally have to pay money down and meet more stringent criteria.
Loan eligibility requirements
Qualifying for a VA loan is primarily tied to your military service record and status. Active-duty service members, honorably discharged veterans, National Guard and Reserve members who meet service requirements and certain surviving spouses are typically eligible.
You will also need a Certificate of Eligibility from the VA as proof of your service. VA loans tend to be more flexible than conventional loans regarding credit requirements, but lenders can still look into your credit history and income to determine whether you can afford the loan you’re applying for.
The home you buy with a VA loan has to meet the VA’s standards for safety and habitability, and it must be your primary residence.
Conventional loan requirements vary but are typically more strict than government-backed loans. You will usually need a credit score of at least 700 to get the best interest rates. The stronger your credit history, the more likely you are to qualify — be prepared to provide documents that show proof of income, bank statements and more to prove financial stability.
You’ll also need to meet property standards for conventional loans and pay for an appraisal to determine the property’s condition and value.
Loan closing costs and fees
VA loans require a funding fee in most cases, a one-time payment that depends on factors like service status and whether you used a VA loan in the past. The amount of your fee depends on the amount of your loan and the type of loan you get.
Conventional loan closing costs also depend on the type of loan you get, your loan amount and where you live. Closing costs typically vary between 3% and 6% of your loan amount and can include appraisal fees, attorney fees and processing fees you pay your lender to process your loan.
Down payment requirements
Minimum requirements for conventional loan down payments usually start between 3% and 5% of a home’s sale price, though paying 20% is considered ideal by many lenders and can reduce the cost of your monthly mortgage payment.
VA loans do not require any down payment, which can make homeownership more affordable for qualifying borrowers. Paying money down can, however, reduce your funding fee and decrease your monthly mortgage payment and interest.
Loan limits
Loan limits are adjusted periodically to accommodate changes in the housing market — the baseline conventional conforming loan limit in the U.S. for 2023 is $726,200, according to the Federal Housing Finance Agency. It’s higher in Alaska and Hawaii ($1,089,300) because average home prices are more expensive in those regions.
The standard limit for VA loans also increased to $726,000 in 2023 for most U.S. counties.
Mortgage insurance requirements
With a conventional loan, if your down payment is less than 20%, your lender may require Private Mortgage Insurance (PMI) for protection against default. This adds to your monthly costs but can be removed once you reach a loan-to-value ratio of about 80% or lower.
VA loans do not require PMI or any other type of ongoing mortgage insurance.
Property restrictions
The condition and characteristics of a property can impact whether you qualify for a conventional loan. Requirements vary, but typically, you must ensure the property meets specific safety and habitability standards — so if there is significant damage to the foundation or roof, you may be denied or need to make repairs before closing.
An appraisal is required to determine the property’s value and confirm that it meets lender and loan-to-value ratio requirements. Property type matters, too: Most single-family loans in sound condition qualify for conventional loans, but eligibility can vary for condominiums, townhouses or multi-unit properties.
Lenders usually require homeowner’s insurance to protect their investment, especially if the home is in a high-risk area. You’ll need to ensure there are no issues with the home’s title like outstanding liens or disputes.
Many of the same property requirements apply to VA loans, although there are some differences. The property you’re purchasing must be your primary residence and satisfy the VA’s Minimum Property Standards, which concern areas like structural integrity, roofing, HVAC, plumbing and more. You will need to have a VA appraisal to assess the property’s value and confirm that it meets the Minimum Property Standards set by the VA.
Other requirements specific to VA loans include stipulations regarding distance to military facilities and private road access. The lender may impose additional safety restrictions if you purchase a home near a military facility, such as an airfield. Properties located on private roads must be accessible year-round and well-maintained, and you will need to have a written road maintenance agreement.
Resale and refinancing
If you want to refinance with a conventional loan, lenders will evaluate your eligibility by looking at your credit score, income stability and debt-to-income ratio. In most cases, you can refinance as soon as you want, although you may have to wait several months to refinance with the same lender.
You’ll sign the new loan agreement, replacing the old one, if you are approved. There is no time requirement for reselling a home after purchasing it with a conventional loan.
Homeowners with a VA loan looking to refinance can do so with VA-backed cash-out refinance loans or the Interest Rate Reduction Refinance Loan (IRRRL).
Both refinancing options require you to wait about 240 days, or six to seven payments, whichever period is longer. The VA does not impose any time requirements if you have a VA loan and want to resell your home.
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The benefits of a VA loan vs conventional loan
A VA loan can offer distinct advantages compared to a conventional loan, but only for active service members, veterans and qualifying spouses. Conventional loans typically require down payments of at least 3%, whereas VA loans do not.
Unlike conventional loans, VA loans can further reduce monthly costs because they don’t require private mortgage insurance and often have more lenient credit score requirements.
The benefits of a VA loan
No down payment required
No private mortgage insurance required
More lenient lending criteria
VA funding fee can be rolled into the loan amount, reducing upfront costs
Access to VA cash-out refinance and IRRRL loans
Low interest rates
More stringent appraisal process
Potentially longer closing timeline
The benefits of a conventional loan
Accessible to a wider pool of borrowers
Fewer property use restrictions
Competitive interest rates
Beneficial for buyers with strong credit
Diverse term options and potential for lower total interest cost
Down payment usually required
PMI requirements for down payments less than 20%
Stricter qualification requirements
Is a VA loan better than a conventional loan?
For those who qualify, VA loans can be more advantageous than conventional loans because of their low interest rates and no down payment requirement, which can mean significant long-term savings. Not having to pay any money down also makes homeownership more affordable for many people entering the market for the first time.
VA loans typically don’t require PMI, and they feature more lenient lending criteria than conventional loans, making them a better option for borrowers with a limited credit history.
Finally, including the VA funding fee in the loan, can reduce the upfront expense of buying a home.
Summary of Money’s VA loan vs conventional loans
Veterans, active duty military and some spouses can use a VA loan or a conventional loan when making a home purchase.
Conventional loans can benefit homebuyers with strong credit and enough money to make at least a 20% down payment. But with VA loans, there is no down payment or PMI requirement, which can lead to major savings on monthly mortgage payments.
VA loans aren’t as customizable as conventional loans, and it may take longer to close on a house because VA loans have a stricter appraisal process. However, the advantages of a VA loan, which typically include low interest rates and more lenient lending criteria, may outweigh these drawbacks.
Many people want to buy a home but think it isn’t possible because they don’t have money to put toward a down payment. Traditionally, lenders require a 20% down payment toward your mortgage.
But a 20% down payment adds up to a lot of money. For example, if you plan to purchase a $150,000 home, you’d need to come up with a $30,000 down payment. Many people cannot afford this, but fortunately, the 20% rule is a lot less common than you might think.
Is a buying a house with no money down possible?
The National Association of Realtors (NAR) reports that 39% of non-owners believe they need a 20% down payment or more and 22% believe they need a 10% to 14% down payment.
But neither of these are true. Many mortgage lenders will let you buy a home by putting down as little as 3%. And some lenders will let you skip the down payment altogether.
NAR also found that 61% of first-time homebuyers made a down payment between zero and 6%. So, it’s safe to say that a 20% down payment isn’t the standard anymore. But unfortunately, many consumers choose not to pursue homeownership because they believe this down payment myth.
Weighing the Pros and Cons of No Down Payment Mortgages
Is there any reason to aim for 20% down when most home buyers buy with a down payment less than 20%? If you can afford it, yes, the 20% rule is still a wise choice.
The more money you put toward your mortgage, the less debt you’ll have to repay and the less your monthly payment will be. Plus, there are several drawbacks to putting down less than 20%:
Less favorable rates: If you pay less than 20%, lenders will probably see you as a risky investment. And they will take this into consideration when calculating your mortgage rates. In general, you can expect to pay a higher interest rate if you put down a smaller down payment.
Higher closing costs: Closing costs are based on the size of your mortgage. So, the smaller your down payment is, the higher your closing costs will be. However, you may be able to get around this if you live in a state where it’s typical for the seller to pay the closing costs.
Private mortgage insurance (PMI): Private mortgage insurance is a type of mortgage insurance designed for borrowers who make a down payment lower than 20%. It protects your mortgage lender in case you end up defaulting on your loan.
PMI can cost as much as 1% of your total monthly mortgage payment. So for a $150,000 mortgage, you’ll end up paying $150 per month.
However, this may not be that bad, especially if you have a less expensive mortgage. And once you reach 20% home equity, you can cancel your PMI and get rid of these extra payments.
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How to Buy a House With No Money Down
Fortunately, there are several lending programs that do not require a down payment. Here are five payment assistance programs that will help you buy a home with little to no down payment.
1. VA Loans
VA loans are a valuable option for eligible military veterans, active-duty service members, and certain surviving spouses. These government-backed loans offer several benefits, making homeownership more accessible and affordable through the use of a VA loan.
100% Financing and No Down Payment
One of the most significant advantages of VA loans is the 100% financing, meaning you won’t need to make a down payment when utilizing a VA loan. This can save borrowers a substantial amount of money upfront, making it easier to enter the housing market.
No Private Mortgage Insurance (PMI) Requirement
Unlike conventional loans that require PMI for down payments less than 20%, VA loans do not require PMI. This can save borrowers hundreds or even thousands of dollars per year in mortgage insurance premiums when using a VA loan.
VA Funding Fee
While VA loans offer numerous benefits, there is a one-time funding fee charged to help offset the costs of the program. The funding fee is 2.15% of the total loan amount for first-time users of VA loans and 3.3% for subsequent uses.
This fee can be financed into the VA loan, reducing the out-of-pocket expenses for the borrower. In some cases, borrowers may be exempt from the funding fee, such as those with service-connected disabilities.
Certificate of Eligibility
To apply for a VA loan, borrowers need to obtain a Certificate of Eligibility (COE) from the Department of Veterans Affairs. The COE verifies the borrower’s eligibility for the VA loan program based on their military service or, in some cases, the service of their spouse. The COE can be requested online through the Department of Veterans Affairs website, by mail, or through an approved lender.
Additional Benefits
VA loans also offer competitive interest rates, more lenient credit requirements, and flexible underwriting guidelines compared to conventional loans. Additionally, there are no prepayment penalties, allowing borrowers to pay off their VA loans early without incurring additional fees.
2. Navy Federal Credit Union
Navy Federal Credit Union’s loan program is similar to what the VA offers. It offers a zero down mortgage and no mortgage insurance. And Navy Federal’s funding fee is only 1.75%.
Navy Federal offers a 30-year loan and a 30-year jumbo loan. 30-year loans have a loan limit of $424,100 while jumbo loans are available up to $1 million. However, you will have to be a Navy Federal member to qualify.
3. USDA Loans
If you’re looking to move to a rural area, you might qualify for a USDA loan. The United States Department of Agriculture Housing Program was designed to aid rural development and is aimed at low-income families. USDA loans offer 100% financing with low interest rates.
Here are the eligibility requirements you must meet to qualify for a USDA loan:
When buying a home it must be within the USDA’s boundaries: Although this loan targets rural areas, some suburban areas may still qualify. You can look at this map on the U.S. Department of Agriculture’s website to see if your location falls within the USDA’s geographical boundaries.
Your household income can’t exceed a certain threshold: This applies to everyone living in the household, even if they won’t be listed on the mortgage. For instance, if you have a parent living with you who collects Social Security, this counts toward the gross income of all members of a household. The maximum household income varies by state and county so you can find out if you qualify here.
See also: Best Home Loans for Low-Income Borrowers
4. Lease-Option
A lease-option (also known as rent-to-own) allows you to rent a home with the option to buy it at a predetermined price after a certain period. A portion of your monthly rent may be applied toward the purchase price or down payment. This can be a solid option if you need more time to save for a down payment or improve your credit.
5. Seller Financing
In some cases, the seller may be willing to finance the property for you, allowing you to purchase the home without a traditional mortgage. This arrangement typically requires a contract outlining the terms of the loan, including the interest rate, payment schedule, and any potential penalties.
Seller financing can be a viable option if you have a strong relationship with the seller or if the seller is having difficulty selling the property.
6. Crowdfunding
Crowdfunding is a method where you raise money from multiple individuals, typically through online platforms. You can set up a campaign to raise funds for your down payment or even the entire purchase price. This method may work best if you have a strong network of friends, family, and supporters who are willing to contribute to your home-buying goal.
7. Shared Equity Agreements
Shared equity agreements involve partnering with an investor who provides a portion or all of the down payment in exchange for a percentage of ownership in the property. When the property is sold or refinanced, the investor receives a return on their investment based on the agreed-upon share of equity. This can be an attractive option if you can’t afford a down payment but are willing to share future appreciation in the home’s value.
8. Housing Assistance Programs
There are numerous local, state, and federal housing assistance programs that offer grants, low-interest loans, or other forms of financial support to help eligible individuals purchase a home with no money down. These programs often have specific requirements, such as income limits, property location, or first-time homebuyer status. Be sure to research and apply for any programs for which you might be eligible.
Low Down Payment Loans
If you’re unable to buy a house with no money down but can afford a small down payment, consider these low down payment options that can help make homeownership more accessible.
1. 97% LTV mortgages
97% LTV mortgages is a loan program that is offered to first-time homebuyers by Fannie Mae and Freddie Mac. They require a 3% minimum down payment and private mortgage insurance.
Here are the guidelines for the program:
You’ll need a credit score of at least 680
One of the borrowers must be a first-time homeowner
Manufactured housing isn’t permitted
Gifts, grants, and other funds may be used toward the down payment
2. Federal Housing Administration (FHA) Loans
The Federal Housing Administration (FHA) was established in 1934 to reduce the requirements to qualify for a mortgage. This government-backed mortgage program offers flexible requirements, making it an attractive option for first-time homebuyers.
Here are the guidelines you’ll need to meet to qualify for an FHA loan:
Credit Score Requirements
The minimum credit score required to qualify for an FHA loan is 500. The specific down payment requirements depend on your credit score:
If your credit score is between 500 and 579, you’ll need to make a 10% down payment.
If your credit score is 580 or higher, you’ll have to make a 3.5% down payment.
Seller Contributions
FHA loans allow sellers to contribute up to 6% of the closing costs. This can help reduce the upfront costs for the buyer and make it easier to afford the purchase.
Mortgage Insurance Requirements
Mortgage insurance is required for an FHA loan, protecting the lender in case the borrower defaults on the loan. However, once you build 20% equity in the home, you can refinance to a conventional loan to eliminate the mortgage insurance requirement.
Debt-to-Income Ratios
FHA loans accept high debt-to-income (DTI) ratios, allowing borrowers with significant existing debt to still qualify for a mortgage. The FHA typically requires a maximum DTI of 43%, but exceptions can be made for borrowers with compensating factors, such as substantial savings or a history of making large payments on time.
3. HomeReady Mortgage
The HomeReady mortgage is a Fannie Mae program designed for low-to-moderate-income borrowers. It requires a down payment as low as 3% and offers flexible underwriting guidelines, making it an attractive option for first-time homebuyers or those with limited credit history.
4. Home Possible Mortgage
Similar to the HomeReady mortgage, the Home Possible mortgage is a Freddie Mac program that allows for a down payment as low as 3%. It is designed to help low-to-moderate-income borrowers achieve homeownership and offers flexible underwriting guidelines.
5. State and Local Homebuyer Assistance Programs
Many state and local governments offer homebuyer and down payment assistance programs that provide grants or low-interest loans to help cover down payment and closing costs. These programs typically have income and property location requirements, so be sure to research and apply for any programs for which you might be eligible in your area.
Each of these low down payment mortgage options has its own set of eligibility requirements and potential benefits. Be sure to research and compare these options to determine which one best aligns with your financial situation and home-buying goals.
Preparing for Homeownership
Before jumping into the home buying process, it’s essential to prepare yourself financially and mentally. This section covers tips for improving credit scores, creating a budget, and managing debt to make the home buying process smoother.
Credit Score Improvement Tips
Improving your credit score involves checking your credit report for errors and disputing any inaccuracies. Ensure that you pay your bills on time and reduce outstanding debt as much as possible. Keep credit card balances low, avoid opening new credit accounts, and consider requesting a credit limit increase without increasing your spending.
Creating a Budget
Creating a budget requires tracking your income and expenses to understand your spending habits better. Categorize your expenses and set realistic limits for each category. Allocate funds for saving and investing, including a down payment and emergency fund, and regularly review and adjust your budget as needed.
Managing Debt
Managing your debt effectively involves prioritizing high-interest debt and paying more than the minimum payment. Consider debt consolidation or refinancing options to secure a lower interest rate. Avoid taking on new debt before applying for a mortgage and create a debt repayment plan that you can stick to.
Understanding the Total Cost of Homeownership
Understanding the total cost of homeownership means factoring in property taxes, insurance, maintenance, and utility costs. Estimate homeowners association (HOA) fees if applicable and consider the costs of furnishing and updating the home. Prepare for potential increases in expenses over time, such as property tax hikes.
How to Choose the Right Mortgage Option
With various mortgage options available, it’s crucial to select the one that suits your financial needs and long-term goals. This section discusses factors to consider when choosing a mortgage, such as loan term, interest rates, and mortgage insurance.
Fixed-Rate vs. Adjustable-Rate Mortgages
Fixed-rate mortgages have a consistent interest rate for the loan’s duration, providing stability and predictable monthly payments. In contrast, adjustable-rate mortgages (ARMs) have an initial fixed-rate period followed by periodic rate adjustments, which may result in lower initial payments but potential rate increases over time.
Mortgage Term: 15-Year vs. 30-Year
The mortgage term plays a crucial role in determining the overall cost of your mortgage. 15-year mortgages typically have lower interest rates and allow for faster equity buildup, but require higher monthly payments. 30-year mortgages offer lower monthly payments, but result in more interest paid over the loan’s lifetime.
Mortgage Insurance Considerations
PMI may be required for conventional loans with less than a 20% down payment. Loans backed by the federal government, such as FHA, VA, or USDA loans, may have different insurance requirements or fees.
Assessing Your Long-Term Goals
When choosing a mortgage option, consider how long you plan to live in the home and whether your financial situation or housing needs may change. Evaluate the potential for home value appreciation and the impact on your future financial goals.
Planning Your Next Steps
Assess Your Financial Situation
The amount of money you choose to put toward a down payment is a personal choice. If you feel ready for homeownership but know that a 20% down payment isn’t feasible for you, there are many options available to help you.
The best place to start is by looking at your monthly budget and seeing what you can realistically afford. Use a mortgage calculator to reverse engineer your goal and find your ideal home purchase. Consider factors like property taxes, insurance, and maintenance costs, as well as any debts you currently have.
Get Pre-Approved
Get pre-approved for a mortgage before you start house hunting. This will give you an idea of how much you can afford, and it will show sellers and real estate agents that you’re a serious buyer.
To get pre-approved, you’ll need to provide your lender with documentation such as pay stubs, bank statements, and tax returns. They’ll then assess your credit score and financial history to determine how much they’re willing to lend you.
Shop Around for the Best Mortgage
Shop around for the best mortgage rates and terms. Don’t just settle for the first lender you come across. Compare different lenders and loan programs to find the best fit for your financial situation. Look for competitive interest rates, low fees, and flexible repayment terms.
Work with a Knowledgeable Real Estate Agent
A good real estate agent can help you find a home that fits your needs and budget. They’ll also guide you through the home buying process, making it less stressful and ensuring you don’t make any costly mistakes.
Attend First-Time Homebuyer Classes
Consider attending first-time homebuyer classes or workshops. Many local organizations and government agencies offer educational resources for first-time homebuyers. These classes can help you understand the ins and outs of the home buying process and give you the knowledge you need to make informed decisions.
Save for Unexpected Expenses
Even if you’re able to buy a home with no money down, it’s a good idea to have some savings set aside for unexpected expenses. These might include moving costs, home repairs, or furnishing your new home.
Build an Emergency Fund
In addition to saving for unexpected expenses, it’s also important to have an emergency fund in place. This should be enough to cover three to six months’ worth of living expenses in case you lose your job or face another financial emergency.
Be Patient and Stay Disciplined
Home buying is a complex process, and it can take time to find the right home and secure financing. Stay focused on your goals, be disciplined with your spending, and remember that homeownership is a long-term investment.
Conclusion
Buying a home with no money down is possible, but it may not be the best choice for everyone. Consider your financial situation, your long-term goals, and the various mortgage options available to you before deciding on a zero down payment mortgage. With careful planning and preparation, you can make your dream of homeownership a reality, even if you don’t have a large down payment saved up.
The GI Bill offers numerous benefits for veterans, active-duty service members, and their families however it does not offer its own home loan program.
But military borrowers have access to the VA home loan program through the U.S. Department of Veterans Affairs, a mortgage program designed to help make homeownership more accessible.
The VA home loan program offers significant benefits, particularly when compared to other home loan programs, including:
No down payment requirement
No private mortgage insurance (PMI)
Competitive interest rates
Flexible qualifying requirements
Verify your new rate
Is there a GI home loan program?
While there is technically no home loan program including the GI Bill benefits, military home buyers who qualify for the GI Bill also likely qualify for the VA home loan program, which offers mortgages to eligible veterans, service members and their families.
Benefits of a VA home loan
A VA loan’s most significant benefit is that it requires zero down payment. Where other programs might require anywhere from 3 to 20 percent of the loan amount upfront, a VA loan will have no down payment at all, which can represent immediate savings.
Other VA loan benefits include:
Competitively low interest rates
No private mortgage insurance
Flexible qualifying requirements
Capped closing costs
Loans are assumable
No loan limits
Can be used multiple times
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VA loan eligibility & requirements 2024
VA service eligibility requirements
VA loans are intended for active-duty service members, veterans, and their families (including surviving spouses).
That means, there are service requirements that borrowers must meet to qualify.
Generally, eligible borrowers will have one or more of the following:
90 consecutive days of active service during wartime
181 days of active service during peacetime
6 years of service in the National Guard or Reserves
A spouse who died in the line of duty or due to a service-connected disability or injury
Servicemen will demonstrate their qualifying military background with a Certificate of Eligibility (COE), a document that indicates the specifics of their military service and the total amount of their entitlement.
Borrowers can request a COE directly from the VA, or a VA lender can help you request it.
VA financial eligibility
The VA doesn’t set qualifying financial thresholds for its borrowers. These requirements will be set by the individual private lender issuing the VA loan. That means the minimums required to qualify will vary somewhat from lender to lender, and military borrowers may even be in a position to shop around if they are having difficulty qualifying.
That said, VA borrowers can generally expect to need a score of 640 or greater and a debt-to-income (DTI) ratio of 41 percent or less.
VA loan property requirements
In addition to qualifying requirements for the borrower, the VA sets requirements for the property that is being purchased with a VA loan. This is intended to ensure that the VA program is being used to get military borrowers into homes that are suitable primary residences — both safe and structurally sound.
The VA lender will order a VA appraisal — not to be confused with a home inspection — which will ensure the home meets the VA’s livability standards. Learn more about the VA Minimum Property Requirements (MPRs) here.
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Types of VA home loans
VA loans can be used to purchase or refinance a house. The types of loans available through the VA program include:
VA Purchase Loans: These can be used to purchase a primary residence, including a multi-unit property of up to four units, a VA-approved condo or townhouse, or a manufactured home.
VA Streamline Refinance: Also sometimes known as a VA Interest Rate Reduction Refinance Loan (IRRRL), these refinance loans are intended to help existing VA homeowners quickly and affordably lower their interest rate or improve their loan terms.
Native American Direct Loans: These VA loans are specifically for veterans of Native American descent and can be used to buy, build, renovate, or refinance properties on federal trust lands.
VA Cash-out Refinance Loans: These VA loans allow homeowners to convert their home equity into cash by replacing an existing home loan with a larger one and giving the borrower a lump sum of cash. VA cash-out refinance can be one option for converting a non-VA home loan to a VA loan.
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What is the VA funding fee?
The VA funding fee is a percentage of the loan amount paid at closing. This money enables the VA home loan program to be self-sustaining and for the Department of Veterans Affairs to guarantee future VA loans.
The amount of the funding fee is variable and typically costs between 0.5 and 3.3 percent of the loan amount. The exact amount is determined by the nature of the borrower’s military service, the size of the down payment, the type of loan, and the number of times the borrower has used the VA loan program.
While the VA funding fee can be a significant upfront cost, it is a cost that is generally offset by the other savings that the VA loan program offers.
Finally, the VA funding fee can be financed into the overall loan amount and paid over time.
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GI loan FAQ
How much is a typical GI home loan?
While there is no GI home loan, the VA home loan program has no limits. That means borrowers with full entitlement can get a loan amount for as much as they like — provided they can qualify for it financially with a mortgage lender.
What are the benefits of a VA home loan?
The VA home loan is a product intended to help veterans, active-duty service members, reservists, and even some of their family members, to purchase a home.How much house can I afford as a veteran? The amount of house that a borrower can afford with a VA home loan will depend on their budget, the interest rate they qualify for, and the size of down payment they can afford to make.
What is a Certificate of Eligibility (COE)?
The Certificate of Eligibility (COE) is a document that indicates the details of someone’s service with the armed forces and the amount of VA entitlement that is available to them. Lenders use the COE to confirm a borrower meets the VA service requirements.
Can I get a COE as the spouse of a veteran?
In some cases, a spouse may be able to get a COE, such as when the service member is missing in action, a prisoner of war, or has died in the line of service or from a service-related injury/disability.
Can I get a COE for a VA direct or VA-backed home?
COEs are required for all VA loans, including Native American Direct loans, or VA-based purchase or refinance loans.
How much is the funding fee?
The VA funding fee is typically between 0.5 and 3.3 percent of the total loan amount, depending on whether the borrower is purchasing or refinancing, whether or not they are a first-time borrower, how many times they have used the VA loan program, the size of their down payment, and the nature of their military service.
Are World War II vets eligible for the VA home loan program?
Yes, WWII veterans are eligible for the VA home loan program. Service members with 90 days of consecutive active service during wartime, including in Korea, Vietnam, and Iraq, are eligible for the VA loan program.
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Military home loans: The bottom line
While the GI Bill doesn’t offer a home loan benefit, the VA home loan program is a wonderful resource for service members looking to purchase or refinance a home.
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