Whether you are a first-time buyer or looking to move up, knowing how much house you can buy is always the best place to start. Just as there is more than one kind of home, there is more than one way to finance it. Mortgage lenders have come up with many different methods of helping you pay for a home--each one with its own advantages and disadvantages.
Though certainly non all-inclusive, some of the basic financing options available include:
Fixed-rate Mortgages - With a fixed-rate mortgage, (also known as a conventional loan) your interest rate stays the same for the term of the mortgage, which is usually 30 years. Your principal and interest payment remains stable, making it easier to plan a monthly budget. Now is an excellent time to apply for a fixed-rate loan because interest rates are still at an all-time low! If you can afford a 15-year loan, the savings in interest will be enormous.
Adjustable-rate Mortgages - With an ARM loan, your interest rate and monthly payments start out lower than with a fixed-rate for the first few years, and then begin to fluctuate with the index. Initially, your payment will be low but, as rates fluctuate over time, your payments can change either up or down, depending on where interest rates in general are going. These mortgages will include "caps," limiting the amount - up or down - which an interest rate can fluctuate during both the year and over the life of the loan. But there may be no rules as to how high those caps can be nor how often they can change the rate (some adjust monthly!); they are simply set by the lender. Be very careful when considering an ARM loan - they aren't for everyone. If you have questions, please call us or a trusted lender!
FHA-Insured Mortgages - FHA loans are the best thing going and more FHA loans are being made than ever before in history. In this type of loan, the traditional lending institution makes the loan and the Federal Government insures the lender against loss in case the homebuyer defaults on the loan. This program was set up so that Americans who can't afford the 10% to 20% down payment required by most lenders can still buy a home. You do not have to be a first-time buyer in order to qualify for an FHA loan and FHA loans have higher debt-to-income ratio limits and lower-than-average interest rates, so you can qualify for "more" home with less money! FHA loan amounts have just been increased, they require 3% down, and allow a Seller to contribute up to 6% towards a buyer's total closing costs. In addition, cash gifts from family members can be used as the 3% down. Though a reasonable credit score is required, guidelines offer more leeway than most conventional programs offered by traditional banks. There are a number of FHA loan programs to suit a wide variety of buyers. Click here for a direct link to HUD's site and FHA mortgage information. The list of requirements and standards a house must meet to qualify for an FHA loan are reasonable; for a snapshot look at those guidelines, click here.
VA Loans - Our military men and women deserve a break and VA loans are used for active and retired military only. Under this program, the active-duty or retired vet simply applies for a "Certificate of Eligibility (CE)" and takes it to the bank; the Department of Veterans Affairs guarantees the lender against loss. VA loans can be used with no money down and with the closing costs paid by the seller. Interest rates are low and spending limits are high. Other rules apply. Click here for a direct link to the VA's official home-buying site.
Assumable Loans - Though virtually non-existent these days, you may possibly find a home which the seller has owned for many years with a mortgage loan you can "assume." This means that the lender is willing to transfer the old loan on the home to you with less cost and qualifying. Again, these mortgages are extremely rare.
Down Payment Requirements - Most loans today require a minimum down payment. For example, conventional loans require 5-20% of the sales price, while FHA's minimum requirement varies form 3-5% of the sales price. Veterans have the opportunity to use their VA certificate and purchase a home with no down payment. Down payments are paid at the time of closing. On a HUD home, down payments run approximately $1,000.00.
Rennovation Loans - For homes which require repairs, updating, or even just a new porch, renovation loans can fit the bill. Ask us about participating lenders.
Before you decide which loan is right for you, talk to a knowledgeable, reputable loan officer. You will get information that will help you figure out which option best suits your needs.