For those with high credit scores but little cash, buying a home has traditionally been a bit of a problem. Lenders are interested, because people with high credit scores are good credit risks, likely to pay off their debts responsibly. Borrowers with high credit scores are even offered better interest rates than those with lower scores. But a home is a major purchase, and lenders have traditionally wanted significant down payments (ideally 20%), though there are ways to get around that sometimes, via private mortgage insurance (PMI), special programs, and combinations of loans ("piggyback" loans).
There's a new option now: "SingleFile" loans, which are low-down-payment mortgages. Here are some things to know about them:
- Down payments can be as low as... zero dollars. Amounts borrowed can top $600,000.
- The minimum FICO credit score is 700, with borrowers also needing a sparkling credit report and relatively low overall debt.
- PMI is included in these packages, but it's built into the overall cost of the mortgage and is reflected in the interest rate. In other words, you won't be making separate, non-tax-deductible PMI payments, but you will be paying a higher interest rate. Worse, once you've built up significant equity in your home, you won't be able to cancel and stop paying for PMI, as you can in traditional arrangements.
- They offer the convenience of having your entire mortgage payments payable via one check per month instead of having to keep on top of several different loans, as some folks end up having to do.
- Launched by Mortgage Guaranty Insurance, a unit of MGIC Investment
(NYSE:MTG), SingleFile loans are expected to be available from many lenders soon. MGIC is in the PMI business, so it stands to benefit from SingleFile loans. [Learn more about MGIC.]
SingleFile mortgages do offer some benefits, and for some homebuyers they're the best option. You'll need to investigate them and crunch some numbers to see what the best option is for you. Talk to lenders such as local banks and perhaps to mortgage brokers, as well.
For more guidance on the homebuying process and on how mortgages work, as well as some special interest rate offers, visit our Home Center and our Rate Center. And drop by our Buying or Selling a Home discussion board, too -- where folks will be happy to answer your questions. We're currently offering a free trial of our entire discussion board community.
Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article.