Home Mortgage Options
Home Mortgage Options and types of loans isn’t as straightforward as it sounds. There are numerous kinds of home loans that are available. Getting a home loan does not need to be scary at all. I made this manual to help you understand the types of loans that are available.
Home Mortgage Terms
- Closing Cost – This is the amount of money you need to close the mortgage deal. Closing costs could include title insurance, escrow fees, lender charges, real estate commissions, transfer taxes, and recording fees.
- Adjustable-Rate Mortgage (ARM)
a mortgage with a variable interest rate, which adjusts monthly, biannually, or annually. - First-Time Home Buyer
Has not owned a home in three years. - Points
You buy points to get a lower interest rate. You pay less over time. Each point equals 1% of the mortgage. - Bridge Loan
Short term loan is taken out against one property to finance the purchase of a new property. - Debt-to-Income Ratio
the ratio of monthly liabilities and housing expenses divided by the monthly gross income of the borrower. - Reverse Mortgage
62 or older who wish to tap their home equity without paying monthly mortgage payments.
Home Mortgage Options – Conventional Loan
A conventional loan is not insured or guaranteed. The loan is backed by private lenders. They have more flexibility but can be riskier because they’re not insured and it could also be harder to qualify.
With a conventional loan, the lender is at risk if you default. If you can no longer make payments, the lender will try to recoup as much of the remaining balance as they can by selling your house through a short sale process or even foreclosure.
The mortgage lender will ask for:
- Recent pay stubs,
- tax returns,
- bank statements
- financial information.
They want to make sure you have a steady income and can make your monthly mortgage payments on time. A down payment is required to qualify for a loan. You can put as little as 3% down.
NOTE: Conventional mortgage borrowers typically make larger down payments. They tend to have more money saved and are less likely to default.
A larger down payment means lower monthly payments. Plus, with the ever-increasing mortgage insurance premiums on FHA loans, payments for conventional loans that don’t require private mortgage insurance can be much more manageable in comparison. FHA loans charge mortgage insurance premiums for the life of the loan.
What is an FHA Loan – AKA First time home buyers loan – Home Mortgage Options
NOTE: Most condos in Maimi do not have reserves and will not accept an FHA loan. This type of loan usually works for single-family homes and townhouses.
Home Mortgage Options / Types of loans
- FHA loan is from the Federal Housing Association for first-time buyers. Allowing down payments as low as 3.5% with a 640 FICO, FHA loans are helpful for buyers with limited savings or lower credit scores.
- The problem is, an FHA loan can cost thousands more in the end.
- To get an FHA loan, you’d have to work with an FHA-approved lender, which could be a bank, credit union, or mortgage company. FHA provides a guarantee on the loan.
- You’ll need to satisfy a number of requirements to qualify for an FHA loan. It’s important to note that these are the FHA’s minimum requirements and lenders may have additional stipulations.
- I don’t recommend FHA loans. They’re one of the most expensive types of mortgages. You might not realize this if you only look at how much money the FHA “saves” you on the front end.
Credit score ( *I am not a mortgage lender so please confirm with your mortgage lender *)
Down payment funds
If you’ve got a credit score of 640 or higher, your FHA down payment can be as low as 3.5%. A credit score that’s lower means you’ll have to plunk down 10% of the purchase price. The good news? It doesn’t all have to come from savings. You can use gift money for your FHA down payment.
Debt-to-income ratio (DTI)
FHA loan requires a certain debt to income ratio. I believe 50%. This includes debts that you aren’t currently paying. For student loans in deferment, your FHA loan underwriter will include 1% of the loan’s total as the monthly payment amount. For other types of loans that you aren’t currently repaying, underwriters will use 5% of the loan’s total to calculate your DTI.
Home Mortgage Options – VA Loan –
A VA loan is a home mortgage option that’s issued by private lenders and backed by the U.S. Department of Veterans Affairs. It helps U.S. veterans, active duty service members, and widowed military spouses buy a home.VA loans were introduced as part of the GI Bill in 1944, but they’ve become increasingly popular in recent years This type of loan is an attractive option because it’s pretty easy to qualify for and doesn’t require a down payment.
VA Loan Requirements
- You’re an active duty service member
- You’re an honorably discharged veteran who has 90 consecutive days of active service during wartime or 181 days of active service during peacetime.
- You served more than six years in the National Guard or the Selected Reserve.
- You’re the spouse of a service member who died in the line of duty.
If you were to go through the application process, you would need a Certificate of Eligibility (COE) to show mortgage lenders that you qualify for a VA loan. You can apply for a COE through the VA website, by mail, or through your lender.
VA mortgage’s requirements
- The VA doesn’t set a minimum credit score to qualify for a loan. The lender is the one that makes the decision. According to the VA.
- VA loan debt-to-income ratio
- The VA doesn’t specify a maximum debt-to-income ratio. If it’s over 41%, lenders will need to provide proof of ability to repay the loan.
- Down payment requirements
- Under most circumstances, you don’t need to make a down payment.
Additional Types of loans
Reverse Mortgage
A reverse mortgage is a home loan that allows homeowners 62 and older to withdraw some of their home equity and convert it into cash. You don’t have to pay taxes on the proceeds or make monthly mortgage payments.
Jumbo Loans
A jumbo loan is a mortgage we use to finance properties that are too expensive for a conventional conforming loan. The maximum amount for a conforming loan is $510,400 in most counties, as determined by the Federal Housing Finance Agency (FHFA). Homes that exceed the local conforming loan limit require a jumbo loan.
HELOC
A home equity line of credit, or HELOC, is a second mortgage that gives you access to cash based on the value of your home. You can draw from a home equity line of credit and repay all or some of it monthly, somewhat like a credit card.
Nikky Salvat – Loan officer I use
FIRST TIME HOME BUYERS BOOK
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