The home-buying process can be exciting and stressful. The good news is that there are plenty of loan types out there to fit your individual needs. Trey Belmore, a loan officer with The Lending Partners, says, “There is a misconception among a lot of first-time home buyers in the marketplace that 20 percent down is a requirement to purchase a home, but that is not the case.”
Before modern mortgages came into existence in 1934, buyers weren’t able to qualify for a mortgage unless they had 50 percent down. That didn’t happen until the Federal Housing Administration decided to initiate a new kind of mortgage, which aimed at lower down-payment requirements in hopes of pulling the U.S. out of the Great Depression. They did this by insuring the mortgages and qualifying buyers based on their ability to pay back the loan. Private mortgage insurance, required for some Conventional loans, was authorized in the U.S. in 1956. The moral of this bit of mortgage history: It is much more affordable for buyers to purchase a home today than in the past, and, it is always advisable to have a loan officer by your side to guide you in the right direction.
The Federal Housing Administration is a great way to go, especially if you’re a first-time home buyer. The benefits include a low down-payment of 3.5 percent, a lower interest rate compared to a Conventional loan, easier qualification with challenged credit (The Lending Partners qualifies as low as 600), higher debt ratios allowed, and no reserves requirement. This can assist buyers so all they have to pay for is their down payment. If a homebuyer chooses to move forward in purchasing a home in need of repairs, they can opt for an FHA 203k streamline, which means they can roll in the cost of repairs into their loan. Luke Wroten, a loan officer with Home Team Mortgage, says this loan type also allows higher seller-paid closing costs.
If you are a qualified veteran or active-duty service member, a VA loan can help you purchase a home with no required down payment or no mortgage insurance; it does, however, require a funding fee, which can be rolled into the loan amount. The funding fee amount depends on the size of the loan amount and down payment, whether you served or are currently serving. Veterans can be totally exempt from a funding fee if they receive certain disability benefits. VA loans can even be used to finance homes exceeding the conforming unit, when combined with a down payment. It can range anywhere between 1.25 and 3.3 percent. You can qualify for a VA loan with a credit score as low as 600.
Conventional with Mortgage Insurance
If you have good or excellent credit this loan type might be right for you. You can be approved with a credit score as low as 620 with this loan type and a down payment as low as 3 percent, but the price of mortgage insurance weighs heavily on your score. The higher your credit score, the better your interest rate will be. There are two ways this loan can work for you: Single premium mortgage insurance lets you pay the full amount upfront each year. Though your overall rate will be higher, your monthly mortgage payment will likely be lower. The other option is to have the monthly insurance amount rolled into your mortgage payment so you pay less upfront. The good news about mortgage insurance is that if you make $75,000 or less each year it is tax deductible; the rate is tax deductible for people making over and less than this amount.
Are you looking for a home in a rural area? This loan type may be right for you. It gives you the option for 100 percent financing and comes without mortgage insurance. This program does carry stricter guidelines with employment and income. USDA has an annual fee which is similar to PMI. The annual fee is recalculated each year based on the new balance of the mortgage. The annual fee is currently only .35 percent, which began October 1, 2016. The annual percentage fee on USDA loans stays for the entire 30-year term, but because it is based on the annual mortgage balance, the dollar amount decreases each year. You can qualify with a credit score as low as 600, so be sure do discuss this with your loan officer.
Second Lien Option
You could use this loan type to avoid mortgage insurance and still put down less than 20 percent. Consider this option if your monthly mortgage payment would be lower than a loan option that requires mortgage insurance. As an example, if you have 10 percent to put down on your home and need another 10 percent to make your down payment the full 20 percent needed to avoid mortgage insurance, you could opt for a second loan to go toward your down payment. Contact your loan officer to see if you can qualify. There is not a set standard for a minimum credit score, so it may vary per situation.
Considering purchasing a home? Home Team Mortgage Company, Ebby Halliday’s affiliated mortgage company, has a track record of building long-lasting relationships by providing exceptional service with competitive rates. With an office in each Ebby Halliday branch, Home Team Mortgage loan officers offer the convenience of one-stop shopping, coupled with expertise to ensure peace of mind for borrowers and agents alike.
For all your mortgage questions and needs, contact Home Team Mortgage Company.