With more home buyers entering the market, competition increasing, driving prices in most pocket areas up, consumers begin to place more emphasis on sustainable payment over time considering they could be paying more for the property than anticipated. Such real estate market conditions are also causing many buyers to switch mortgage loan programs during the pre-approval phase and well into after they’ve gotten they have gotten into contract. While qualifying for the mortgage is the end result, to perform on a purchase contractg, the appropriate loan program promoting long-term payments sustainability becomes next critically important piece of the puzzle.
How to make sense of all of the home buying choices available.
Conventional Loan-including the basic 30 year fixed-rate mortgage
What To Know: conventional loans in most cases represent the lowest cost combination of rate and payment over time. This type of financing represents the cream of the crop, available in the market today. 20% down to avoid monthly mortgage insurance, with the lowest possible payment being 3% is common. Conventional loans also contain the toughest loan qualifying standards, making open communication with your lender paramount.
FHA Loans/Including first-time home buyer options
What To Know: FHA Loans are typically geared towards consumers entering the real estate market for the first time. This type of financing however, is eligible for anyone and is not solely a first-time home buyer program. 3.5% down payment/equity is required making an FHA Financing flexible where cash is otherwise low. An FHA loan is also considered a higher cost loan because the monthly mortgage insurance raises the payment over the life of the loan when compared to another programz such as conventional financing. Bear in mind, FHA loans will require mortgage insurance for a minimum of 60 months no matter what the down payment or equity is in the property. Additionally, loan qualifying is relatively more flexible and debt ratios are much more lenient when compared to other home buying options.
USDA Rural Guarantee 502 Loan Program
What To Know: allows a home buyer to purchase property in a designated US Department of Agriculture approved rural area. No money down is another advantage to using this type of financing. Program is subject to certain income and household dependent limitations. The biggest change to come recently, is the US Department of Agriculture’s constrictive limits on debt thresholds, which could reduce borrowing power for some home buyers.
Fannie Mae Home Path Loans
What To Know: soley for use on Fannie Mae on properties only. Homepath.com offers a nationwide state and city property location lookup tool to see which properties are eligible. The program offers two main advantages, those being no appraisal requirement and no monthly mortgage insurance requirement. The cost of these two advantages comes in the form of a higher risk based pricing, an inherently higher cost loan. For example, it’s not uncommon to see two to three discount percentage points paid to Fannie Mae in acquiring financing for use in conjunction with a home purchase.
VA Loans for military families
What To Know: the US Department of Veterans Affairs guarantees loans for veterans looking to purchase real estate. The program allows for 100% financing and no money down and does not contain any monthly mortgage insurance. This allows the veteran to maximize purchasing power while at the same time, keeping the monthly house payment manageable. VA Loans contrary to popular belief, do not have “set” a reserve requirement (money saved in the bank), but it certainly does not hurt one’s eligibility for approval. The program also requires any identified property to pass the test report which must be paid for by the seller of the home.
*Mortgage Tip: mortgage loans are made against credit, debt, income and assets. If you plan to purchase a home, and your income and monthly debt obligations are relatively low, but down payment is a challenge, a 3.5% FHA loan, USDA loan (under certain income limitations) or possibly a 5% down conventional loan would make the most sense. If debt obligations are relatively high, the credit score is mediocre, 680 for example, an FHA loan might make the most sense in terms of overall flexibility. If your credit score is 740 or higher, and down payment funds are relatively large i.e. 15 to 20% down, conventional financing might be most suitable.
Focus on the home buying program that provides lowest payment, while maximizing borrowing power
Pre-approved buyers typically focus on purchase price, when in most cases, it’s the monthly payment over time relative to the purchase price that dictates whether or not that particular property can be identified as an opportunity. For example, purchase price dictates down payment and subsequent funds needed to close escrow, it is the monthly payment that commands the biggest influence on the household budget when weighted against house price and/or cash to close.
Depending payment thresholds, credit score, monthly liabilities, and income and of course down payment capability, getting a better feel for which mortgage loan program is can help you acquire the home while being flexible on the finances. If you would like a complementary preapproval, start today by getting a free rate quote.
