Thinking about applying for a home loan? Running to the closest bank is not your only option. Within conventional financing there are many options and outside of that, there is also VA (Veterans Affairs) and FHA (Federal Housing Administration) mortgage support. And that doesn't even include all of the government assistance programs out there! Here's some helpful tips.
Conventional financing allows you to tailor your loan to your needs and interests. One option is fixed rate (FRM), which means the interest rate will remain the same throughout the life of the loan. This is also called a "conventional mortgage". The alternative is an adjustable rate mortgage (ARMS) which adjusts to the national economy. These usually start with better rates than fixed rate mortgages to compensate the borrower for taking a greater risk. Then there are hybrid FRM/ARM mortgages where the loan can be converted from one form to another after a certain period of time.
Another personal stamp you can put on a loan is its length. The standard length for a loan is 30 years but reducing it to 15 years will substantially lower the amount of interest you will be paying while only slightly increasing the amount of the loan payment. You can also choose an accelerated payment program, which allows you to make payments bi-weekly instead of monthly, reducing the life of the loan as well as the amount of interest paid overall.
Lastly, you can enlist a family member or friend to participate in a buy-down whereby they help reduced your mortgage payments by paying some portion of them for you in the initial years of the loan. This can help you buy a house you might not otherwise have been able to afford.
Conventional financing usually has requirements for credit scores, income and minimum down payments of between 5 and 20 percent. Keep in mind you will need excellent credit to qualify for the best rates but you will face fewer hurdles than you would going with VA, FHA or government assistance programs.
A VA home loan is one backed by the U.S. Department of Veterans Affairs. It has unique qualifications and advantages. To qualify you must meet one of the following requirements: o Have served 181 days during peacetime (Active Duty) o Have served 90 days during war time (Active Duty) o Have served 6 years in the Reserves or National Guard o You are the spouse of a service member who was killed in the line of duty
The benefits are that you can purchase a home with no money down, the only stipulations being that the purchase price doesn't exceed the appraised value and the seller will pay the closing costs. The VA guarantees the entitlement to a loan from a private lender, it does not itself loan out the money. Because of this, the veteran will still need to qualify based on income and credit score. The veteran also has the restriction of not being able to refinance and VA charges an upfront fee ranging from 2.15 to 2.4 percent, which helps pay for the cost of the VA loan and can be rolled into the loan or paid by the seller. However, a VA loan is a great option for qualified veterans because it allows them to purchase a house without any upfront costs.
A FHA home loan is one backed by the Federal Housing Administration, which provides support to the borrower should they default on the loan. This added insurance allows the lender to loan more funds than they normally would to the buyer. Because of this, FHA loans are ideal for people with poor credit, moderate debt-to-income ratios and for people who do not have a lot of money for a down payment. Stipulations of FHA backing require the borrower to make a minimum 3.5 percent down payment and there are limits to how much they can borrow. However, this down payment rate is still much lower than is usually required with conventional financing, there is no minimum credit score requirement (though the lender may still uphold their guidelines), and being backed by the FHA usually means that lender will give consideration to the overall picture of the borrower's credit as opposed to singularly relying on automated underwriting software.
Certain personal circumstances can impact your loan application and are things you should discuss with your loan officer up front. These are:
- Being self -employed
- Being employed by a relative
- Claiming any of the following forms of income: social security payments, retirement payments, or welfare or disability income
- Being unemployed or a full-time student
- Owning savings bonds
Down Payment Resource
Still looking for another option for assistance with a home loan? Down Payment Resource is a collection of all government funded buyer assistance programs. It identifies properties that are eligible for these programs through the Multiple Listing Service, a database of properties on the market (excluding for sale by owner properties unless the seller hires a Realtor to list it), and provides the guidelines for the borrower to qualify. This service is currently only available through Realtors so contact Geri Reilly to learn more.
With interest rates down and so many assistance programs available to homebuyers, it's a great time to find the home of your dreams. When you're ready, contact your friends at Geri Reilly Real Estate, we'll be happy to help!
Some helpful links:
For more information about a VA home loan go to http://www.benefits.va.gov/homeloans/
For more information on a FHA loan go to http://www.fha.com/
For more information on Down Payment Resource go to http://www.workforce-resource.com/
For more information on various types of mortgages and loan programs we recommend contacting The Mortgage Guys at Spruce Mortgage: http://www.vermontmortgageguys.com