4 Niche Loan Options That Are Helping New Home Buyers

Bridget McCrea
Bridget McCrea
The Mortgage Reports Contributor
February 4, 2017 - 4 min read

Mortgage Guidelines Now More Flexible

When you buy a home, learning about the array of available mortgage types can pay off.

Your real estate agent or lender might tell you about common 20 percent down conventional loans or low-downpayment .

But as a proactive home buyer, you can research niche loan types that may help you achieve homeownership faster and at better terms.

With that knowledge in hand, you’ll come at home buying from a different angle. You will be better equipped and educated to for your situation.

Your friends and family may not have heard of the loan program you end up using, and that’s okay. Some of the best loan types are also the least known.

What really matters is your satisfaction with your home and loan.

What Are The Key Differences Among Mortgage Loans?

All mortgage loans were not created equal. And that’s a good thing for the consumer.

From fixed to adjustable rate, conventional to VA, each loan product possesses its own set of strengths that serve a subset of buyers.

Lenders are eager to fill the needs of more families, some of which do not fit into what were once considered traditional lending guidelines.

So new products are coming on the market, making more families eligible. Learning about the new loan types available means a little extra time and effort, but also greater reward.

Lenders are continually innovating and coming up with new types of loans that appeal to a broad range of home buyers. Here are four that you’ll want to explore if you’re currently in the market for a new home.

3% Downpayment Loans

Homeownership is becoming more accessible thanks to nationwide programs being created by the biggest rule-making agencies.

These programs are turning renters into buyers without the need for substantial liquid funds.

is a mortgage program administered by Fannie Mae and offered by banks and mortgage companies across the country. It requires just 3% down, and buyers can use non-traditional income types to qualify.

Income from boarders or roommates will be considered, as will that of non-borrowing parents and other household members.

A similar program is Freddie Mac’s Home Possible Advantage®. It also allows a 3% downpayment and offers reduced mortgage insurance to make homeownership more affordable.

Both these programs would require just $6,000 in upfront cash to purchase a $200,000 home.

That is a reduction of $1,000 in upfront costs compared to FHA’s already-low downpayment minimum of 3.5%.

Piggyback Mortgages

The piggyback mortgage is a consumer-friendly option that lets borrowers avoid private mortgage insurance (PMI) while putting down less than 20 percent.

This program is aimed at higher-credit borrowers who have at least 10% down. Yet some lenders are more flexible on down payments and credit scores.

Piggyback mortgages layer one loan on top of another to cover a larger percentage of the property’s purchase price. They come in a variety of iterations—including 80/10/10, 80/5/15, and 80/15/5.

An 80/10/10 piggyback loan, for example, is structured as follows.

  • 80 percent first mortgage
  • 10 percent second mortgage
  • 10 percent down

In some cases, overall costs will be lower than with a single 90% loan-to-value mortgage. Piggyback mortgages do not require PMI and second mortgage rates are low.

Specialized Loans for Service Workers

Special lending options support the nation’s government workers, teachers, emergency personnel, firemen, and police. These loans are continually being honed to meet the needs of the country’s service workers.

Designed by the U.S. Department of Housing and Urban Development (HUD), the provides these discounts in an effort to bring “good neighbors” into select revitalization areas.

Buyers who are employed in one of the lender’s eligible professions receive a 50% discount on select homes and need just $100 down. Teachers, police officers, firefighters, and EMTs may purchase a home in select areas at steep discounts and flexible terms.

Condo-specific FHA Loans

Historically, condominium buyers have faced unique financing challenges when using FHA financing. Condominium complexes must be on FHA’s approved list. Otherwise, the buyer must use another loan type to buy any unit within the complex.

But in 2015, Congress passed the Housing Opportunity through Modernization Act, eliminating some small but important requirements that were keeping many condo complexes off the list. It may take some time, but more condos should soon become available to FHA buyers in the coming year.

This is good news for low- to moderate-income and first-time buyers who want a more affordable option than buying a free-standing home.

FHA loans allow borrowers to finance up to 96.5 percent of their condominium purchase price. Owning an FHA-approved condo could be as affordable as renting an apartment.

Niche Loan Options Rates

Mortgage interest rates are low and the number of niche loan options is growing.

Most U.S. real estate markets still offer properties and prices that are in-reach for the average-income buyer, thanks in part to extremely low mortgage rates.

Whether you want to use a low downpayment loan, a piggyback option, or a condo loan, now is a great time to check current mortgage rates and come up with a purchase plan that works for you.

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