Buying a home is both an exciting time and a scary time. It is easy to become overwhelmed and confused with the financing side of things. Having a basic understanding of the types of loan programs and having a good loan officer helps clarify the process of which loan is best for you.
A few helpful tips would be to have an idea of how much money you can put down, your credit score, where you want to live and your longer-term real estate goals. A good lender can help you immensely with this process as well. Give us a call and we can put you in touch with some lenders we trust will put your best interests first. Here is a breakdown of some of the main features of the primary types of mortgages.
Conventional· Down payment can be as little as 3% down.· Works best for those who have good credit, a stable income and at least a 2-year work history.· Unless you put over 20% down, you will usually be required to pay mortgage insurance. This insurance protects the lender in the event you default on the loan. However, once you have 20% equity into the home, you can ask your lender to drop the mortgage insurance (PMI), often saving well over a hundred dollars a month. This will require you to pay for a new appraisal, too, for confirmation you have at least a 20% equity interest.· Can be used for a primary home, second home or investment property.· “Jumbo loans” are also available for homes if needed (loans over $510,400). This qualifying criteria is generally more strict.
FHA Loan· This is a government backed loan.· Often used for those without a 2-year work history, or imperfect credit.· Minimum 3.5% down payment.· These loans may be assumable with qualifying· Mortgage insurance is required. You pay both upfront mortgage insurance and monthly mortgage insurance and, unlike a conventional loan, the monthly mortgage insurance remains in place regardless of the amount of equity in the property.· Can only be used for owner occupied properties (up to a four-plex) if it is the primary residence for the owner.
VA Loans· 0% down with no mortgage insurance.· Only for qualifying veterans and their families that provide proof of eligibility.· Some closing costs cannot be paid for by the buyer and must be paid for by the seller or waived.· VA loans do require a VA funding fee which can be rolled into the mortgage.· Must be a primary residence.
USDA Rural Development Guaranteed Housing Loan Program (“USDA”)· 0% down with reduced mortgage insurance rates.· The home must be in an area deemed rural by USDA maps.· If the buyer falls into the very low income criteria, rates can be as low as 1% but eligibility needs to be re-examined every year.· Primary residence only, no duplexes or acreage.
Most of these loan types can work with the first-time home buyer or other specialty mortgage loan programs. FHA and VA mortgages are assumable under certain conditions.
Conventional, FHA and VA are available in 15- or 30-year loans, and fixed or adjustable rates.
Fixed Rate means that what you pay monthly in principal and mortgage insurance will remain constant. Your payment could still increase as your taxes and insurance increase. This choice is usually better when rates are low as they are currently or when you plan on staying put.
This is just a general guide to the many loan programs available to homebuyers. If you have any questions, or are interested in learning about other loan programs that can include up to $15,000 in down payment and closing cost assistance, please contact us!