Most buyers assume that FHA is their only option when looking for low down payment mortgage options. They also assume that because FHA products typically have the lowest rate, they will also have the lowest possible payment with their minimum down payment.
In Massachusetts, MassHousing loans may make more sense than FHA loans to pursue if your scenario requires a low down payment.
Benefits to MassHousing:
The Massachusetts Housing Finance Agency (MassHousing) has great loan programs that allow qualified borrowers to put as little as 3% down with and without private mortgage insurance.
If you choose the no mortgage insurance program your rate will be higher than FHA and the monthly mortgage insurance option but make sure you do the math. Financing your mortgage insurance into your interest rate typically does two things: most importantly it will give you a lower monthly payment but it will also maximize your tax deductibility since the interest is tax deductible. This can be a huge benefit when it comes time to itemize your taxes by deducting the mortgage interest you pay instead of paying that money to the government as a mortgage insurance payment (talk to your CPA or Tax Preparer about your individual scenario).
Drawbacks to MassHousing:
MassHousing loans do have stricter qualification standards than FHA loans. The minimum credit score is 680 for MassHousing with the minimum 3.0% down payment (660 with a 5.0% down payment)* , maximum debt to income ratios of 41% (45% with a 5.0% down payment), you cannot own any other real estate while maintaining at least 3 open and active credit trade lines for the last 12 months. You also must meet their maximum income guidelines (which vary by county), and complete a home-buyer education class certified by the state.
If you can meet the stricter qualification standards, MassHousing loans are usually the better option vs FHA loans. You can actually put less down (3% vs 3.5%), and there is no mortgage insurance fees. FHA requires both upfront (financed into your loan amount) and monthly mortgage insurance payments for the life of your loan (assuming you put less than 10% down).
When you are considering your financing options with less than a 20% down payment, remember just because FHA typically has the lowest rate, it will come with a higher monthly payment. Make sure you are provided all financing scenarios for your individual scenario. More times than not, taking a higher rate and financing your mortgage insurance with less than 20% down will give you a lower monthly payment.
Feel free to contact me for a full mortgage analysis to ensure you are being provided all options for your individual scenario.
*assumes single family or condominium
Today's story is provided by Craig Barber of Fairway Independent Mortgage in Boston MA.
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