The following is courtesy of Michael Lamborn, Mortgage Adviser, Coldwell Banker Home loans.
You know that the down payment is frequently the biggest hurdle for many potential homebuyers – especially millennials – to clear, both in terms of dollar amount and credit score requirements. Buyers looking for a low down payment option have often relied on the U.S. Department of Housing and Urban Development's (HUD) FHA-insured loans that can offer down payments as low as 3.5%. Now, though, buyers have another option – one that allows them to put as little as 3% down.
A buyer must have a credit score of 500 or higher to qualify for an FHA loan, while a conventional loan requires a minimum credit score of 620. FHA loans can offer more flexibility with credit guidelines – your buyers can get additional insight and detail by speaking with their Loan Officer.
An FHA loan will allow the seller to contribute up to 6% of closing costs, while a conventional loan only allows up to 3% if the minimum down payment requirements are utilized. This can be a considerable benefit for buyers looking to reduce the financial impact of the home purchase.
While the credit requirement is typically higher on conventional mortgages, it brings into play a difference between the two programs in terms of mortgage insurance.
CNN article on the announcement.