304 North Cardinal St.
Dorchester Center, MA 02124
304 North Cardinal St.
Dorchester Center, MA 02124
Taking out a loan in order to become a homeowner is one of the biggest financial decisions a person can make in their lifetime. That’s why it’s important to understand the ins and outs of this process. If you’re wondering – how much is 5 mortgage interest, here’s everything you need to know.
A 5 mortgage interest loan depends on several factors, including the repayment schedule you agree on, the principal amount, and your credit score. The rates also vary from lender to lender, and since 5 mortgage loans require only a 5% down payment, you can expect higher interest rates.
When you’re applying for a mortgage and thinking about what kind of loan you should get, there’s a lot more to consider than just figuring out the best time to apply or reading the best mortgage books.
When you opt for a 5 mortgage loan, you will be required to pay 5% of the total house value as a down payment upfront. A small amount for the downpayment means you will get a higher interest rate, but the total amount you will have to repay depends on numerous additional factors, such as the repayment schedule, the principal amount, and your credit score history.
While the 5 mortgage loan exists only in the UK as government-supported loans, there are mortgages that are available in the US with similar prices, interest rates, and conditions.
But before I get into the specific types of mortgages with low down payments available in the US, let’s take a look at the pros and cons of having a low down payment for your home.
Having a large amount of money upfront for a down payment is difficult, and most people simply can’t afford it, especially students looking for a loan. But, when the down payment is as low as 5%, you will be able to make the purchase sooner. Additionally, with a low down payment, you can usually fix your monthly payments for the next five years.
Ask any mortgage packager, and they will tell you that making anything less than a 20% down payment is not a good idea when buying a home because your interest rates will be higher. This means that, besides paying off the principal loan, you will have to pay a significantly higher amount of interest over the duration of your mortgage.
While this is essentially how lenders make money no matter what the down payment is, having even the slightest increase in interest can turn out to be quite costly in the long run. Here are a few more downsides to making a low down payment:
The 5 mortgage loan is a government-supported loan in the UK, but there are a lot of government-backed mortgages in the US as well. These types of loans are meant for people who, for whatever reason, don’t have enough funds to make a large down payment of 20% or more.
Most of these mortgages are supported by three government departments – the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), and the US Department of Agriculture (USDA). These departments operate as backing agencies that ensure the loan amount and protect the lender if payments are not made.
There will be an explanation for each of them, but for now, here’s an overview of the most important aspects of every government-supported mortgage program:
|Mortgage Details||FHA Loans||VA Loans||USDA Loans|
|Down Payment||3.5%||No down payments||No down payments|
|Who Can Apply||Everyone||Active service member, a veteran, or an eligible spouse||People buying a house in a rural or qualified suburban area|
|FICO Score||580 or higher||620 or higher||640 or higher|
While an FHA loan is provided by private lenders, the loan is still regulated by the Federal Housing Administration. This type of loan differs from conventional loans because it usually allows lower credit scores and down payments.
While everyone can apply, most of the single-family programs provided by the FHA require a monthly insurance premium (MIP) and a funding fee. If you decide on taking out an FHA loan, figure out if your chosen lender offers it. For example, if you want to work with Rocket Mortgage, the most important thing would be finding out if Rocket Mortgage offers FHA loans.
A VA loan is a special type of loan offered to aid active service members, veterans, and their surviving spouses when buying a home by the Department of Veterans Affairs. However, this department does not make the loans but instead sets the mortgage terms and regulates who can qualify.
The VA usually guarantees a part of the loan in order to reduce the risk for the lender, and you can pay the VA mortgage online.
A USDA loan is a mortgage program offered by the Rural Housing Service that is a part of the Department of Agriculture. They provide no down payment and usually very favorable interest rates to rural first-time home buyers who meet their requirements.
Home prices are rising fast, and many first-home buyers simply don’t have the needed 20% for a down payment in order to have a lower interest rate on their mortgage. If that’s the case, there are some borrowing options you can explore, but keep in mind that each has its pros and cons:
Figuring out what type of mortgage is the right choice for you, as well as what lender you want to work with, is possible only by taking your time to do research. While a low down payment is usually not the best option because of an increase in interest rates, it might be the best decision for your particular situation. So, do your research, start applying, and you will be able to call yourself a homeowner soon enough!