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Mortgage Loan Options
Did you know that 20% of the purchase price is not the minimum down payment required for all mortgage loan programs? It’s not even the minimum required for several conventional loan programs! If your rate of savings does not exceed the rate of home price increases, continuing to wait until you’ve saved up a full 20% might do more harm than good. While 20% is still a solid financial choice, there are several mortgage loan options to meet your needs and budget.
Conventional Loans are still one of the preferred mortgage products for a home purchase. Their fees are typically lower than government insured loans and flexible terms. There are several types of conventional loan, with down payment requirements ranging from 3% to 20%, and anywhere in between. Conventional loans can either be “conforming,” meaning that the loan terms, and you as a borrower, meet a specific set of guidelines published Fannie Mae and Freddie Mac; or “non-conforming,” meaning that they don’t quite fit. Interest rates can either be “fixed” which stay the same for the entire life of the loan, or “adjustable” and fluctuate along with the market conditions. Conventional loans will allow home buyers to borrow higher dollar amounts than most government insured loans will as well. Loan amounts that are more than 80% of the home’s value will require mortgage insurance, however, many conventional loans will allow for this to be dropped once the loan balance is paid down enough, the value increases enough, or usually a combination of both.
Jumbo Loans are similar to non-conforming conventional loans and are for loan amounts over $453,100, up to $3 million. Note this is the limit for Texas, and the maximum confirming loan amount will vary in other areas. These loans allow home buyers to purchase larger homes or luxury properties. Terms are similar to those with conventional loans.
FHA Loans are government-insured home loans with a minimum down payment of 3.5% and more flexible qualifying criteria than conventional loans. The government guarantees these loans to ease the risk on banks so that consumers with lower credit scores, higher debt, and less cash in the bank can purchase homes. FHA can be a popular program for first time home buyers, and there are some first time home buyer programs that offer down payment assistance in conjunction with FHA loans. When more than 80% of the home’s value is financed, mortgage insurance will be required as well, and refinancing tends to be the only way to get rid of this insurance cost.
VA Loans are insured by the U.S. Veterans Administration. These loans are only available to U.S. veterans or their surviving spouses (unless they have re-married). VA loans do not require a down payment, though the borrower may do so if they would like to and have limits on some of the up-front fees that can be charged. VA loans also do not require mortgage insurance. Qualifying criteria is usually similar to an FHA loan, with the exception of a VA certificate of eligibility.
USDA Loans are available in specific areas, based on population. These areas tend to be rural or outside of city limits, not within major cities or suburbs, though some outer suburbs may qualify. USDA loans are insurance by the government, similar to an FHA loan, but qualifying criteria is closer to a conventional loan. No down payment is required by USDA, and the loan must be certified by the organization prior to closing.
When considering a home purchase, discuss your options with a trusted mortgage loan officer to choose the loan type that is right for you. Many home buyers will initially choose their loan type based on the down payment requirements, but similar loans may be available with better rates or lower payments. Buyers can also choose loan terms of 30 years or less. Shorter mortgage loans will typically have lower interest rates, but slightly higher monthly payments, which can result in great savings in the long run.
Your Realtor can discuss loan options with you as well and can help by providing you with great loan officer recommendations, since we work closely with mortgage banks and loan officers on a regular basis.
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Christie Smith is passionate about Real Estate! Growing up with both her Father and Grandfather in real estate, Christie developed an early recognition for all things brick and mortar, going on to rec....