Depending on your financial capability, your qualifications and your own unique goals, there are dozens of different options to consider.
Because of this complexity, you should never take the advice of a friend or relative who is not a mortgage professional. A loan that may be perfect for someone else, might be terribly inappropriate for you. It’s critically important that your loan officer understands who you are – your wants and needs; only then can he “prescribe’ the best solution.
Also, for low income buyers, if you qualify, you may be eligible for Downpayment Assistance Programs that provide as much as $60,000 towards your down payment costs.
Review the info in the tabs below for a quick overview; it’s a great starting point to help you understand some of your loan options and the benefits of each.
TYPES OF LOANS
[tabs] [tab title=”Low Down Payment”] If you’re like most people who are considering a home purchase, the down payment is typically the biggest challenge. However, contrary to media reports – you don’t need to have a 20% down payment and perfect credit to buy a home. There are many home loan options that do not require a large down payment. In fact, the standard FHA loan only requires 3.5% down payment and even these funds can be gifted to you from a family member.There are also Conventional loan programs that require only 3% down and still other special programs only require 1% or even 1/2% down payment.
In most cases, where your down payment is less than 20%, the lender will require mortgage insurance to insure their investment from loss. This is usually an additional monthly fee to cover the cost of mortgage insurance premiums. However, we also have low down payment programs where mortgage insurance is not required.
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[tab title=”Low Credit Score”]
You credit does not have to be perfect to buy a home either. For the best interest rates and access to the best programs, you will want your middle credit (FICO) score to be at least 620 for all borrowers. However, mortgage products are available that will allow credit scores as low as 580. These loans may carry other criteria beyond the credit score requirement. For these types of loans, you should expect the interest rates to be higher also.
… there’s sufficient mis-information out there, such that many would-be buyers believe this to be the case. In reality, you can buy a home with as a little as 0.5% down payment.
Worth noting, however, is that applying 20% or more as a down payment for your home loan can be a great idea depending on your goals. Making a down payment of 20% or more is the most basic way to assure that you don’t pay mortgage insurance. Also, since the loan is smaller, the payment will also be lower. Since a 20% down payment offers less risk to a lender than I more leveraged loan, in some cases with some loan products, the interest rate will be lower as well. 20% down is also a “magic number” in mortgage lending. In a normal conventional loan, you are required to demonstrate than you can source at least 5% of the down payment from your own funds, the balance of the funds can come from a gift. However, if your parents or other family members are capable of and willing to gift the entire 20% amount, that it allowable.
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Being clear about the properties value…
… is the last “C”. Collateral is extremely important because it is a lenders last resort to get their money back in the event that the borrower defaults on their loan.
When you borrow money, you offer a Deed of Trust to the lender that gives them the right to take ownership of the property if you default on their loan. The vehicle that they will use to do this is called foreclosure.
Since the loan is being secured by the property as collateral, the lender wants to be extremely confident about the value of the property. The document that helps them to determine value is called an appraisal, and it it required for nearly every home loan.
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