Tag Archive for: low down payment

October 27, 2021
blog blue home evening, mortgage blog, primary residence, preferred rate

These past two years, homeowners across the country have considered buying a second home or relocating for several reasons. It could be a lifestyle change, moving closer to extended family, deciding to shift careers, seeking a lower cost of living, or even taking the big leap toward their dream house.

One question always comes up with every mortgage application: Will your new home be your primary residence? You might be wondering, why does it matter?

When it comes to your mortgage, primary residence, principal residence, and owner-occupied residence have the same meaning. But when you buy a property, it isn’t automatically considered your primary residence. In brief, a principal residence is the main property where you live more than six months out of the year. Your residence can be a single-family home, townhouse, condo, mobile home, or even a boat.

The broad rule is simple: where do you live most of the year? But it isn’t always clear-cut. So then, let’s talk about how to declare a primary residence and why it’s important.

Related: How to Finance a Fixer-Upper with the FHA 203(k) Home Loan

Top Mortgage Benefits of a Primary Residence

When you apply for a mortgage, you’ll need to declare the property type of your new home: principal residence, a second home, or investment property. In general, mortgage rates are the lowest for homebuyers purchasing a primary residence.

A low mortgage rate can save thousands of dollars over the length of your loan. What’s more, there are a number of discounts, loan programs, low down-payment options, and other benefits. When you’re buying or refinancing a principal residence, you’ll have the best options available to you.

Primary Residence Advantages:

  • lower interest rate and mortgage rates
  • flexible loan terms
  • greater home loan options
  • mortgage interest is tax-deductible
  • property taxes are tax-deductible
  • lower capital gains taxes *

* As the homeowner of a principal residence, you might qualify for reduced capital gains taxes when you decide to sell your home. Capital gains tax is due when you sell assets for a profit, such as selling a home. For 2021, the IRS permits homeowners to bypass capitals gains tax on the first $250k (filing single) or up to $500k (married, filing jointly).

Related: How to Buy a Home With Friends or Family

How to Meet the Criteria for a Primary Residence

In short, your primary residence is where you live more than six months of the year. This rule seems pretty straightforward for homeowners who live and work in the same area or are raising a family and sending their kids to a local school.

But it’s not always that clear-cut. For example, what if you travel for work regularly and split your time between two locations? Does your family spend half the year in a winter location travel somewhere new during the warmer months? Some couples own multiple homes and don’t live in any particular home for more than six months out of the year.

When you declare your property as your principal residence, you’ll be asked to verify the following:

  • Tax Returns: What address will be listed on your federal tax returns?
  • Postal Mail: Is your primary residence listed with the U.S. Postal Service?
  • Personal ID: Which address will you use on your Driver’s License?
  • Voting: Where are you registered to vote?

The IRS, in particular, defines a primary residence as an address that is close to your bank, your place of work, where your family resides, or where you are officially part of an organization or local club. Find more info here on tax rules.

Summary

When you apply for a mortgage, most homebuyers want to get the best rate and the loan terms. In most cases, this means being able to declare the property as your primary residence. Primary residence, principal residence, and owner-occupied residence all mean the same thing.

So if you’re looking for a second home or investment property, be aware that it may not meet the criteria needed to qualify as a primary residence. The benefits of declaring a primary residence include getting a lower interest rate, better loan options, tax breaks, and a break on capital gains taxes when you sell your home. 

Next Steps

If you’re not sure whether or not your next property will qualify as your primary residence, we can help guide you through the process. Knowing your loan options is always a smart move, whether you’re considering a principal residence, investment property, or vacation home. Connect with a local mortgage advisor to discuss your goals and set yourself up for financial freedom. We’d love to help.

March 28, 2021
mortgage blog, low down payment, preferred rate

First things first, you might be surprised to learn who qualifies as a first-time homebuyer. Even more surprising, 3% down-payment mortgage options are available for homebuyers who aren’t first-time homebuyers. There are a few limitations, so let’s see which options might be a good fit.

-> Read this short article to find out if you’re eligible as a first-time homebuyer.

Low Down Payment Mortgage Options for First-Time Homebuyers and Repeat Homebuyers

Did you know there are down payment options that require as little as zero percent down on your next home? Find out more about USDA Loans and VA Loans and how you could qualify for a no-down-payment mortgage.

If you’re looking for low-down-payment mortgage options, keep reading.

How to Qualify for 3% Down on Your Next Mortgage in 2021

You’ve probably heard that most new home loans require a down payment between 5%-20% to get a good mortgage. The higher the down payment, the lower the mortgage rate. But this isn’t always the case.

Low-down payment mortgage options only require 3% down and are designed to help more people become homeowners.

A quick list of qualifiers for a 3% down payment option on your next mortgage:

  • A minimum credit score of at least 620
  • Stable employment and regular income
  • No recent foreclosures or bankruptcies
  • Primary residence (live at your new home full-time)
  • Gift funds can be used for the down payment and closing costs
  • Your mortgage must meet conforming loan limits
  • 2021 Conforming limits: $548k in most areas, $822k in high-cost areas

Low Down Payment Mortgage Option #1: HomeReady Mortgage Loan by Fannie Mae

The Fannie Mae HomeReady Mortgage is a mortgage program designed to meet the specific needs of lower-income homebuyers. The income limit set by Fannie Mae is 80% of an area’s local median income. So if you’re shopping for a home in an area where your income is below 80% of that area’s median income, this is a great mortgage option.

The Fannie Mae Home Ready Mortgage has some great benefits to consider for your home loan mortgage.

One of the biggest advantages of the HomeReady Mortgage is the ability to count multiple sources of income toward your loan application. For example, you can include income from renters or relatives living with you when applying for a Fannie Mae Home Ready home loan.

A few benefits and highlights:

  • Gifted funds can be used for up to 100% of your down payment
  • Gifted funds can be used for your closing costs
  • Down Payment Assistance (DPA) can be used for closing costs
  • You can count rental income on your loan application
  • You can count income from relatives or other people living with you (if they’ve lived with you for at least one year).

The Fannie Mae HomeReady home loan can also be used to buy a multi-unit property (up to 4 units) as long as at least one of the units is your primary residence.

Low Down Payment Mortgage Option #2: HomePossible Mortgage by Freddie Mac

The Freddie Mac HomePossible Mortgage is similar to the Fannie Mae HomeReady mortgage program and can help lower-income homebuyers qualify for a home loan. The income limit set by Freddie Mac is 80% of the area’s local median income.

One key difference with the Freddie Mac HomePossible loan is that you’re only allowed to count your own income and rental income on your home loan application. The HomePossible mortgage does not include income from other relatives or occupants as qualifying income (unless they are renters).

A few benefits and highlights:

  • Gifted funds can be used for up to 100% of your down payment
  • Gifted funds can be used for your closing costs
  • Down Payment Assistance (DPA) can be used for closing costs
  • You can count rental income on your loan application

The Freddie Mac Home Possible home loan can also be used to buy a multi-unit property (up to 4 units) as long as at least one of the units is your primary residence.

Low Down Payment Mortgage Option #3: Conventional 97 Mortgage Option for Higher-Income Buyers

The conventional 97 mortgage program is a great option for buyers who have higher income and higher credit ratings but want to qualify for a 3% down payment.

It’s more flexible in some ways since there are no income restrictions, but it has tighter restrictions in other areas. For example, the Conventional 97 mortgage is not available for investment properties or multi-unit properties.

A few benefits and highlights:

  • Keep growing your savings instead of making a big down payment
  • Invest elsewhere to build wealth instead of making a big down payment
  • Ability to cancel PMI (private mortgage insurance) faster
  • Ability to purchase a more expensive home
  • No limitations on areas or neighborhoods
  • No limitations or caps on income

Taking Action

If you’re looking for a 3% down payment mortgage option, there are a wide variety of loan options. Working with an experienced mortgage broker who understands your situation will make a big difference! If you want to save money on your next mortgage and start building equity in real estate, 2021 is a great time to start. We can help.