4 Smart Ways to Lower Your Monthly Mortgage Payment, monthly mortgage payment.#Monthly #mortgage #payment

4 Smart Ways to Lower Your Monthly Mortgage Payment

Monthly mortgage payment

If you struggle each month to make your mortgage payment, you’re not alone. Financial challenges such as a job loss, drop in household income, or major medical bills could make paying a mortgage that was once affordable a financial burden. The Federal Reserve Board reported that in the fourth quarter of 2016, 4.15 percent of residential mortgages in the United States were delinquent. (See also: 8 Signs You’re Paying Too Much for Your Mortgage)

There is hope, though, if you are struggling to make your monthly mortgage payment. There are several steps you can take to lower the size of that payment.

Lengthen your loan’s term

The more years attached to your mortgage, the lower your monthly payment will be. With a longer term, your loan payments are stretched out over more years, making each monthly payment smaller.

Consider this example: If you take out a $200,000 15-year, fixed-rate loan with an interest rate of 3.4 percent, your monthly payment, not including your taxes and homeowners insurance, will be about $1,400 a month. Say you take out that same $200,000 mortgage loan but in the form of a 30-year, fixed-rate loan with an interest rate of 4.2 percent. Your monthly payment, again not including taxes and insurance, will be just $978.

If you are struggling to make the monthly payments on a shorter-term loan, contact your lender and ask to have your loan reamortized to one with a longer term. You won’t need to go through an official refinance to do this. But lenders will charge you a fee, one that LendingTree says averages about $250.

Just remember, when you change your mortgage to one with a longer term, you’ll pay significantly more in interest. This extra interest which could hit $100,000 or more if you take the full term to pay off your mortgage might be an acceptable cost if it helps you avoid falling behind on your mortgage payments and possibly foreclosing.

Refinance to a lower interest rate

The most common way to lower your monthly payment is to refinance your existing loan into one with a lower interest rate.

Say you originally took out a 30-year, fixed-rate mortgage of $180,000 at an interest rate of 5 percent. Your monthly payment, not counting taxes or insurance, would be about $966. Now say you owe $160,000 on that loan and you refinance that amount into a 30-year, fixed-rate mortgage loan with an interest rate of 4.2 percent. That payment would now fall to about $782 a month, a savings of about $184 a month.

There is one big negative that comes with refinancing: You’ll have to pay fees to do it. You can expect to pay about 1.5 percent of the amount you are refinancing in closing costs. For a loan of $180,000, that comes out to $2,700 in closing costs.

Get rid of PMI

No homeowner enjoys paying for private mortgage insurance. This insurance, better known as PMI, protects the lender if you fail to pay your mortgage. Generally, it costs from 0.5 percent to 1 percent of your loan amount each year. So on a mortgage of $200,000, PMI can cost as much $2,000 a year, or about $166 a month.

You only have to pay PMI if you came up with a down payment of less than 20 percent of your home’s purchase price when buying it. If you are paying PMI, you might be able to get rid of this expense, which would lower your monthly mortgage payment. You can request that your lender remove PMI once you have built at least 20 percent equity in your home. If you request this, your lender will send an appraiser to your home to determine its current market value. It will then calculate your equity to determine if you’ve hit that important 20 percent mark.

Reassess your property taxes

If you are like the majority of homeowners, a portion of every payment you send to your lender includes money used to pay off your property taxes. This is known as an escrow arrangement.

Under such an arrangement, your lender estimates how much money you’ll need each year to pay your property taxes. If your lender estimates that your taxes will be $6,000 this year, it will add $500 to your monthly mortgage payment. It will then deposit that $500 into an escrow account. When your taxes are due, it will dip into this account to pay them on your behalf.

You might be able to reduce your monthly mortgage payment by requesting a reassessment with your county tax assessor’s office or tax collector’s office. If your taxes are reassessed and they drop, your monthly mortgage payment will fall, too.

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FHA mortgages have always been the alternative to risky subprime mortgages. The underwriting guidelines for FHA mortgages are very flexible and as a result when your personal loan officer takes your applications and tries to approve it they will receive a response from their underwriting system on if you are Approved, Approved with Conditions, or Not approved.

Also no matter what your score you can get the same rate as someone with excellent credit who also applies for an FHA loan which means no matter what your credit grade you will be saving money.

Being approved with conditions can be as simple as making one of your credit cards current, or maybe a line of credit is still reporting after being closed. There can be a multitude of reasons and the situation is different for everyone. This is essentially your path to homeownership. Your loan officer will inform you on the conditions and it is up to you to meet them.

FHA has released guidelines on credit scores – with a 580 score considered to the be the minimum for approval without conditions. You can still get approved for a mortgage below 580 down to a 500 score but you would need to put a much greater downpayment and possibly resolve any issues around federal debt such as student loans that need to be made current before you can enjoy any FHA financing.

It is also important to note that many banks often have their own specific guidelines for FHA products. We try to match you with the best lenders that can help you.

In the lending industry anything below 640 is considered adverse or bad credit. Since we work with FHA loan officers which have access to these products that lend below 640 we are showing you a path to homeownership even if you have bad credit. There are limits on how bad your credit can be – for anyone below a 500 score there are no options until you can improve your credit.

For more information on how you best get a mortgage with bad credit ask your personal FHA loan officer about your path to homeownership.

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A mortgage is a loan secured by a property usually a real estate property. A real estate mortgage usually includes the following key components:

  • Loan Amount the amount borrowed from a lender or bank. The maximum loan amount one can borrow normally correlates with household income or affordability. To estimate an affordable amount, please use our House Affordability Calculator.
  • Down Payment the upfront payment of the purchase, usually in a percentage of the total price. In the US, if the down payment is less than 20% of the total property price, typically, private mortgage insurance (PMI) is required to be purchased until the principal arrives at less than 80% or 78% of the total property price. The PMI rate normally ranges from 0.3%-1.5% (generally around 1%) of the total loan amount, depending on various factors. A general rule-of-thumb is that the higher the down payment, the more favorable the interest rate.
  • Loan Term the agreed upon length of time the loan shall be repaid in full. The most popular lengths are 30 years and 15 years. Normally, the shorter the loan term, the lower the interest rate.
  • Interest Rate the rate of interest charged by a mortgage lender. It can be “fixed” (otherwise known as a fixed-rate mortgage, or FRM), or “adjustable” (otherwise known as an adjustable rate mortgage, or ARM). The calculator above is only usable for fixed rates. For ARMs, interest rates are generally fixed for a period of time, after which they will be periodically “adjusted” based on market indices. ARMs transfer part of the risk to borrowers. Therefore, the initial interest rates are normally 0.5% to 2% lower than FRM with the same loan term. Mortgage interest rates are normally expressed in Annual Percentage Rate (APR), which is sometimes called nominal APR or effective APR. It is the interest rate expressed as a periodic rate multiplied by the number of compounding periods in a year. For example, if a mortgage rate is 6% APR, it means the borrower will have to pay 6% divided by twelve, which comes out to 0.5% in interest every month.

The most common way to repay a mortgage loan is to make monthly, fixed payments to the lender. The payment contains both the principal and the interest. For a typical 30-year loan, the majority of the payments in the first few years cover the interest.

Costs Associated with Mortgages and Home Ownership

Commonly, monthly mortgage payments will consist of the bulk of the financial costs associated with owning a house, but there are other important costs to keep in mind. In some cases, these costs combined can be more than the mortgage payments. Be sure to keep these costs in mind when planning to purchase a home.

Because the recurring costs perpetuate throughout the lives of mortgages (exception being PMI), they are a significant financial factor. Property Taxes, Home Insurance, HOA Fee, and Other Costs increase with time as a byproduct of moderate inflation. There are optional inputs within the calculator for annual percentage increases. Using these wisely can result in more accurate calculations.

  • Property Taxes a tax that property owners pay to governing authorities. In the U.S., property tax is usually managed by municipal or county government. The annual real estate tax in the U.S. varies by location, normally ranging from 1% to 4% of the property value. In some extreme cases, the tax rate can be 10% or higher.
  • Home Insurance an insurance policy that protects the owner from accidents that may happen to the private residence or other real estate properties. Home insurance can also contain personal liability coverage, which protects against lawsuits involving injuries that occur on and off the property. The cost of home insurance varies according to factors such as location, condition of property, and coverage amount. Typically, the annual cost can range from 0.1% to 5% of the property value.
  • Private Mortgage Insurance (PMI) protects the mortgage lender if the borrower is unable to repay. In the U.S. specifically, if the down payment is less than 20% of the property value, the lender will normally require the borrower to purchase PMI until the loan-to-value ratio (LTV) reaches 80% or 78%. PMI price varies according to factors such as down payment, size of the loan, and credit of the borrower. The annual cost typically ranges from 0.3% to 1.5% of the loan amount.
  • HOA Fee a fee that is imposed on the property owner by an organization that maintains and improves property and environment of the neighborhoods that the specific organization covers. Common real estate that requires HOA fees include condominiums, townhomes, and some single-family communities. Annual HOA fees usually amount to less than one percent of the property value.
  • Other Costs includes utilities, home maintenance costs, and anything pertaining to the general upkeep of the property. Many miscellaneous costs can be deceptively high and it is important to consider them in the big picture. It is common to spend 1% or more of the property value on annual maintenance alone.

While these costs aren’t contained within calculations, they are still important to keep in mind.

  • Closing Costs the fees paid at the closing of a real estate transaction. It is not a recurring fee yet it can be expensive. In the U.S., even though not all are applicable, the closing cost on a mortgage can include attorney fee, title service cost, recording fee, survey fee, property transfer tax, brokerage commission, mortgage application fee, points, appraisal fee, inspection fee, home warranty, pre-paid home insurance, pro-rata property taxes, pro-rata homeowner association dues, pro-rata interest, and more. Sellers will share some of these costs. It is not unusual for a buyer to pay $10,000 in total closing costs on a $300,000 transaction.
  • Initial Renovations Some buyers invest money into renovations, features, or updates before moving in. Examples may be changing the flooring, repainting the walls, or even adding a patio.

Besides these, new furniture, new appliances, and moving costs are also common non-recurring costs of a home purchase.

Early Repayment and Extra Payments

For many situations, mortgage borrowers may want to pay off mortgages earlier rather than later, either in whole or in part, for reasons including but not limited to interest savings, home selling, or refinancing. Most mortgage lenders allow borrowers to pay off up to 20% of the loan balance each year but few may have prepayment penalties for one-time payoffs, mainly to prevent refinancing too soon (which will affect the lender’s profit). One-time payoff due to home selling is normally exempt from a prepayment penalty. The penalty amount typically decreases with time until it phases out within 5 years. Few lenders charge prepayment penalties regardless of home-selling or refinancing, but be sure to review the loan terms carefully anyway just in case.

Some borrowers may want to pay off their mortgage loan earlier to reduce interest. Typically, there are three ways to do so. The methods can be used in combination or individually.

  1. Refinance to a loan with a shorter term Normally, interest rates of shorter term mortgage loans are lower. Therefore, borrowers not only repay their loan balances faster, but receive lower and more favorable interest rates on their mortgages. Keep in mind that this imposes higher financial pressure on the borrower due to higher monthly mortgage payments. Also, there may be fees or penalties involved.
  2. Make extra payments the majority of the earliest mortgage payments will be for interest instead of principal on typical long-term mortgage loan. Any extra payments will decrease loan balances, therefore decreasing interest and pay off earlier in the long run. Some people form the habit of paying extra every month, while others pay extra whenever they can. There are optional inputs to include many extra payments, and it can be helpful to compare the results of supplementing mortgages with extra payments and without.
  3. Make biweekly (once every two weeks) payments of half month’s payment instead Since there are 52 weeks each year, this is the equivalent of making 13 months of mortgage repayments a year instead of 12. Utilizing this method, mortgages can be paid off earlier. Displayed in the calculated results are biweekly payments for comparison purposes.

The Calculator has the tools to help evaluate the options. Please be aware that the rates on mortgages tend to be very low compared with other types of loans. Also, mortgage interest is tax-deductible, and home equity accumulated may be counted against borrowers when applying for need-based college aid. Be sure to consider comprehensively before paying off mortgage loans earlier.

Mortgage Tables – Calculating Payments or the Interest Rate from a Mortgage Table, calculating mortgage.#Calculating

Mortgage Tables

Copyright 2009 by Morris Rosenthal – – contact info

Copyright 2009 by Morris Rosenthal

All Rights Reserved

Calculating Payments or the Interest Rate from a Mortgage Table

We mentioned earlier that before computers, bankers used to use mortgage tables to calculate monthly payments. I’ve included a complete set of tables (interest rate 0% to 20% in 0.05% increments) for determining the payment per $1,000 of principal in Appendix B of version 1.2 of my mortgage math ebook. You sometimes see abbreviated versions of these mortgage tables with values per $1000 of principal in real estate magazines, to help you determine how much house you can afford. What makes it possible to reduce a fairly complex calculation to a simple table is that the complex part remains constant for a given interest rate and number of months. In other words, you only have to compute the big mess once to figure out the relationship between the amount of the mortgage principal and the monthly payment for a particular interest rate on a fixed rate mortgage. So referring back to our mortgage formula again, imagine that the messy part of the equation was replaced with a value from a table, so the equation now reads:

M = P [value from table] / 1,000

Where the value from the table is our familiar mess:

Value from table = [ i(1 + i)n ] / [ (1 + i)n – 1]

So how many interest rates should be calculated for a useful table? Since the calculation of a monthly payment based on the principal you do yourself doesn’t include the various fees and charges that show up at closing, there’s no point in trying to be super accurate when estimating your expenses. We carried the calculation out to enough significant digits that it should be within a penny on mortgages up to one million dollars, but that doesn’t mean you have to keep all the digits yourself when trying to get a ballpark figure for affordability.

The table on the following page can be used to estimate your monthly payment, per thousand dollars of loan mortgage principal, for interest rates between 4.00% and 5.95%. We put fifteen year and thirty year mortgages in the same table for in case you want to print and keep a copy in your wallet or on the fridge while you’re house shopping.

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What’s New at CalHFA

  • Program Bulletin #2017-13 – Proposed Federal Tax Reform and the Uncertainty of Mortgage Credit Certificate Program
  • Press Release 2017-11-09 – CalHFA Launches New Path to Homeownership for Service Members and Veterans
  • Video – Cal-EEM + Grant helps homebuyers with $24,000 of energy upgrades
  • Press Release 2017-10-03 – CalHFA Increases Access to Manufactured Home Loans
  • Program Bulletin #2017-12 – Closing Document Revisions for MyHome Assistance Program and Extra Credit Teacher Home Purchase Program (ECTP) when combined with a CalHFA Government Insured/Guaranteed First Mortgage
  • Program Bulletin #2017-11 – CalHFA Launches New CalHFA VA Loan Program
  • Press Release 2017-09-14 – Michael Carroll is CalHFA s New Director of Multifamily Programs
  • Program Bulletin #2017-10 – Updated Sales Price Limits
  • Program Bulletin #2017-09 – Updated Income Limits for all CalHFA Conventional and FHA Loan First Mortgage Programs
  • Program Bulletin #2017-08 – Updates to Manufactured Housing Guidelines for All CalHFA FHA Loan Programs
  • Press Release 2017-07-11 – CalHFA Helps Hundreds with Free Homebuyer Education
  • Program Bulletin #2017-07 – Escrow Holdbacks Allowed and Name Change for the Notice of Conditional Approval
  • Get to know CalHFA and our programs by viewing our Video Library.
  • Enews announcements can be found on our Archived Page.

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  • The Home Affordable Refinance Program (HARP) is available on loans owned by Fannie Mae and Freddie Mac. If these loans were insured by the California Housing Loan Insurance Fund they may be eligible to have existing mortgage insurance transferred to a new refinance loan.

Other Information

  • Can i get a home loanThe California Victims Compensation Board is available to help California victims of the October 1 shooting in Las Vegas. If you’ve lost a family member, been injured or attended the Route 91 Harvest Festival where this terrible tragedy occurred on Sunday night, CalVCB can provide financial assistance. Visit the California Victims Compensation Board website and news release for more information.
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  • Calculating The Mortgage Tax Break – Mortgage Interest Deduction Calulation For Itemized Tax Returns, calculating

    Calculating The Mortgage Tax Break

    Copyright 2009 by Morris Rosenthal – – contact info

    Copyright 2009 by Morris Rosenthal

    All Rights Reserved

    Mortgage Interest Deduction Calculation For Itemized Tax Returns

    The newest tax break is a $8,000 credit for first time home buyers, passed in 2009, to replace the $7,500 credit from 2008. The credit in 2008 was in the form of a no interest loan that was paid back by the taxpayer on their tax filing at $500 a year for the next 15 years. According to what I’ve read in the paper new $8,000 credit (originally a $15,000 tax credit was proposed) is literally a gift, does not have to be paid back, and anybody can get it. The only limitations seem to be that it has to be for your primary residence, and the tax credit may be limited to 10% of the purchase price, so that you can’t buy a $20,000 house in a depressed area and get a $8,000 credit, but it remain fuzzy. I think they have proposed a pahse out with income, started around $80,000, but wasn’t set in stone. Also, starting in 2011, taxpayers who currently pay at the 33% or 35% rate will now have the value of their mortgage deduction capped at 28%, but all of this is pending the passing of the 2009 budget just released by President Obama. See also my new article about determining how much house you can afford.

    One of the most abused arguments in discussions over whether to rent or buy a home is the mortgage tax break. Realtors like throwing it out there like an assumed, parents tell their children that it made the country great, but there are a number of catches. As with all tax deductions, as opposed to credits, the “savings” are a percentage of money you are spending. No spending, no savings. In the case of the tax break for home buyers, the deduction amount is equal to the interest you are paying on your mortgage, up to a certain amount. Since most of us don’t have the cash to buy a house outright and will end up with a mortgage, being able to deduct the interest sounds almost like free money. But there are two very big reasons it’s not as simple as it sounds. The first is that you’re forced to itemize rather than taking the standard deduction, and the second is that ultimate savings are dependent on your tax bracket, so if you aren’t earning a lot of money, you can’t save a lot of money. The IRS does allow a special mortgage interest deduction for a home office, and that deduction is worth much more since it comes off your Schedule C gross business income.

    The standard deduction in 2007 is $5,350 for single filers, $7,850 for head of household, and $10,700 for married filers. The standard deduction is the “freebie” that all taxpayers can take without itemizing deductions. If you choose to itemize, as you must if you want to get the mortgage interest deduction, you can’t take the standard deduction. Itemized deductions, including mortgage interest, are taken on Schedule A. The total amount of deductions allowed can be limited by your income if you earned more than $150,500, or $75,250 (if married and filing separately). The details are all explained in IRS Publication 936, but the catch is a simple one. If your mortgage interest deduction and all your other Schedule A deductions (primarily state income tax, local taxes, auto excise tax and charity for most filers) is less than your standard deduction, you’d lose money if you itemized. Medical and dental expenses can’t be taken unless they exceed 7.5% of your AGI (Adjusted Gross Income). The mortgage interest and any fees you can deduct (such as closing points) should be sent to you by the lender on a Form 1098 every year.

    In most cases, at least during the early years of your mortgage when most of your payment is being applied to the interest, it probably will pay to itemize. But the question we’re trying to determine here is how the mortgage tax break changes your cost of ownership. I went over how to calculate mortgage payments and interest already, so lets pull some arbitrary numbers out of the hat (and make sure you see the lower example for a 4% mortgage). Let’s say you’re in the early years of paying down a $150,000 mortgage, 30 year term, 6.5% interest. The monthly payment is $948.10, so in the first few years of the mortgage, you’re paying about $10,000 a year in interest. Lets also say your property tax is $2,000 a year, you gave $1000 to charity and paid another $2000 in other deductible taxes. How much have you increased your tax deduction by buying a house rather than renting? Well, there’s the $10,000 in interest, plus the $1000 you gave to charity and the $2000 you spent on excise tax, state tax, whatever tax. I’m also giving you credit for the $2,000 you’re paying in property tax, but keep in mind that if you were renting, you wouldn’t be paying property tax. That’s a unique privilege of ownership. So you have $15,000 in Schedule A deductions, versus the $5,350 you could have taken as the standard deduction for a single filer or the $10,7000 if filing as a married couple. In the single case, itemizing and taking the mortgage interest deduction has allowed you to reduce your taxable income by about $10,000, in the married case, you’ve been able to reduce your taxable income by about $5,000. In any case, you need to calculate how much mortgage interest you’re paying each year or create an amortization table.

    Now for the bad news. You haven’t saved $5,000 or $10,000, you’ve only reduced your taxable income by that amount. This is where I mentioned you have to be paying a lot of taxes already in order to save a lot of money. It’s the same issue that comes up with buying tax free municipal bonds. If you are earning less than $30,650 as a single filer after deductions or less than $61,300 as a married couple after deductions, the most those deductions are saving you on your taxes is 15%. Our single filer who grosses up to around $40,000 a year and took out a $150,000 mortgage is seeing a tax benefit of about $1,500/year, and our married couple who grosses up to about $70,000/year with the deductions above is saving just $750/year on taxes – 15% of the $5000 of additional deduction. In both cases, the $2000 of property tax more than cancels out the “savings.” All things being equal, it would be cheaper AND more tax efficient to rent the same house for around $1,000 a month.

    Note, if the government succeeds in pushing mortgage interest rates down to 4%, that greatly reduces the amount of interest you pay and means the mortgage tax deduction will only come into play for the most expensive houses purchased by high earners. For the $150,000 mortgage example above, if the mortgage rate was 4%, the monthly payment would be $716.12, and the interest portion in the early years would be around $6,000. A married couple would be better off taking the standard deduction unless they could find around another $5,000 in Schedule A deduction, a combination of state and local taxes and charity.For tithers (people paying a 10% tithe to their religious institutions) you might get there, or people in high property tax states like New Hampshire, but I’m guessing the majority of married folks with a mortgage on the median home value in the US will be better off taking the standard deduction. A single person would probably itemize for the first few years of home ownership and save a couple hundred dollars.

    So who are the big winners in the mortgage deduction game, other than the realtors who talk buyers off the fence by painting a glowing picture of tax savings? High income individuals who give a lot of money to charity or pay a lot of local taxes are the main beneficiaries, especially if they have large mortgages on expensive properties. There are limits, but in the end, about half of home owning Americans don’t itemize and take the mortgage deduction, either because they are in the later years of their mortgage where the interest portion is much smaller, or because the standard deduction proves to be larger than their itemized deductions. For most of those who do, the “savings” are relatively small. I wouldn’t be a bit surprised if the average savings is less than the average property tax bill, which means no savings at all.

    The government is now talking about a new sort of standard deduction for mortgage holders who don’t itemize. The number I saw was $500. Talk about a way to lose a little tax revenue without actually helping anybody, it’s the stupidest idea I’ve heard yet. What the government might do that would be useful and not hurt anybody is change penalty free IRA deduction for first time home buyers from $10,000, where it’s languished forever, to $25,000. But the government isn’t really interested in helping savers.

    Bank of America launches 3% down mortgage program – Feb, bank america mortgage.#Bank #america #mortgage

    Bank of America will offer mortgages for 3% down

    Bank america mortgage

    If you’re looking to buy a home but don’t have the 20% down payment sitting around, Bank of America is now offering mortgages with as little as 3% down.

    The new loan program is aimed at helping low- and moderate- income borrowers get home loans for up to $417,000.

    Bank america mortgage

    To qualify, borrowers can’t make more than the median income for their area and need a credit score of at least 660. And the home must be the applicant’s primary residence.

    Low down payment mortgages aren’t exactly new. But borrowers won’t have to pay private mortgage insurance with this loan.

    Most loans with less than 20% down, like those backed by the Federal Housing Administration, also require monthly insurance premiums on top of the mortgage payments. The premiums are used to help protect the lender in case the borrower can’t make payments.

    As with most mortgages, applicants must still have a debt-to-income ratio of no more than 43%. But Bank of America will also consider non-traditional forms of credit — like daycare expenses, health club memberships and rental history — to help determine credit history.

    “There are creditworthy borrowers — people who have shown good experience paying off debts who fit income restrictions — and except for the fact that they don’t have the money for a down payment, they would be good homeowners,” said Terry Francisco, a spokesman for the bank.

    Interest rates on the loans will be determined by a borrower’s creditworthiness and score, and Francisco said Bank of America’s loan option will be cheaper than FHA’s rate.

    First-time buyers will have to attend a homebuyer education program.

    Bank of America ( BAC ) will sell the mortgages to nonprofit loan fund Self-Help, which will then sell them to Freddie Mac.

    Low down payment loans aren’t a great fit for everyone though.

    Putting less money down means you’re financing more, which leads to higher monthly payments and more money paid out in interest over the life of the loan. It also means you have less equity in the home, which could make you more vulnerable if home prices drop.

    In the fourth quarter of 2015, the average down payment on a conventional 30-year mortgage was 17.5%, according to LendingTree.