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Purchasing A Home

you’ve decided to take the plunge and buy a home. You’ve got your eyes set on the perfect property, but did you realize you’d also need to navigate a maze of loan options to make that dream a reality?

Each mortgage loan type comes with its own set of pros and cons. Let’s dive into your options and figure out which one might suit your situation best.

Home Purchase Loans without the Hassle!

Need financing options on a home, or other real estate? Choosing a purchase loan product that matches your goals and making sure you get the best rate for your given scenario can feel like playing whack-a-mole. We’re here to make the home loan process a whole lot easier, with tools and expertise that will help guide you along the way, starting with a FREE pre-approval letter request. We’ll help you clearly see differences between loan programs, allowing you to choose the right one for you whether you’re a first-time home buyer or a seasoned investor.

This is the bread-and-butter of home loans and is probably what comes to mind when you think of a mortgage. With a fixed-rate mortgage, your interest rate stays the same for the life of the loan. No curveballs here; your monthly payment will be consistent, regardless of what’s happening in the broader market.

How Do The Work, Exactly?

These loans come in various terms, with 15 and 30 years being the most common. Your interest rate is set in stone, making your monthly payment a reliable constant. Keep in mind, though, that other variables like property taxes or homeowners’ insurance might fluctuate, potentially affecting your overall payment. ]

Is A Fixed-Rate Mortgage for You? 

If you’re someone who likes stability in your budget and you’re planning to stick around in this home for the long haul, a fixed-rate mortgage is probably your best bet.

So, now that you’re a bit more clued in, you can make an informed decision on which loan type aligns with your home-buying journey.

If you’re eyeing a starter home or aiming to pay off your loan sooner rather than later, an adjustable-rate mortgage (ARM) could be a cost-saving choice. Just like with fixed-rate mortgages, you’ll need to meet certain credit and income requirements to get approved.

Breaking Down How ARMs Work​

ARMs can be divided into two key phases: the introductory period and the adjustment period.

How do Adjustable-Rate Mortgage’s Work?

ARMs can be divided into two key phases: the introductory period and the adjustment period.

Here’s where ARMs have their moment in the sun. They start off with a fixed interest rate that’s generally lower than what you’d find with a fixed-rate mortgage. This honeymoon phase can last anywhere from 5 to 10 years, depending on your lender.

ARMs can be divided into two key phases: the introductory period and the adjustment period.

Here’s where ARMs have their moment in the sun. They start off with a fixed interest rate that’s generally lower than what you’d find with a fixed-rate mortgage. This honeymoon phase can last anywhere from 5 to 10 years, depending on your lender.

Who’s the Ideal Candidate for an ARM?

ARMs often appeal to folks who anticipate moving or refinancing before the introductory period runs its course. They can also be a savvy pick if you’re entering the market when interest rates are unusually high. So, if you’re willing to play the interest rate game and you have a solid exit strategy, an ARM might be the right call for you.

If your down payment is less than 20%, your lender will likely require you to get private mortgage insurance (PMI). It’s an extra cost that safeguards the lender, not you, in case you default. The silver lining? You can kick PMI to the curb once you’ve built up 20% equity in your home.

Types of Home Loans

Conforming Loans

Conforming loans are a type of mortgage that meets the underwriting guidelines set by Fannie Mae and Freddie Mac, two government-sponsored enterprises that buy and sell most U.S. mortgages. These guidelines are designed to make sure that loans are relatively low-risk for lenders, which in turn allows lenders to offer lower interest rates and more favorable terms to borrowers.

Here’s a rundown of some key features:

Pros:

  1. Lower Interest Rates: Generally, conforming loans have lower interest rates compared to non-conforming loans like jumbo loans.

  2. Smaller Down Payments: You can often secure a conforming loan with a smaller down payment, sometimes as low as 3%.

  3. Flexibility: These loans can be used for a primary residence, a second home, or investment property.

  4. Variety of Terms: Available in various formats such as fixed-rate, adjustable-rate, and others.

Cons:

  1. Loan Limits: The loan amount must be below a certain limit, which can vary by county. For 2022, the standard limit is $647,200 in most areas but can go higher in places with high-cost housing.

  2. Stricter Requirements: You’ll need a decent credit score and a stable income to qualify.

  3. Private Mortgage Insurance (PMI): If your down payment is less than 20%, you’ll typically have to pay for PMI, which increases your monthly payment.

Conforming Loan Requirements

Requirements

Explanation

Credit Score

Generally, a minimum credit score of 620 is required, but a score above 740 will help secure the best interest rates.

Down Payment

You can usually get a conforming loan with as little as 3% down but putting down at least 20% will allow you to skip Private Mortgage Insurance (PMI).

Debt-to-Income Ratio (DTI)

DTI ratio that’s less than 43% to make sure you can handle the monthly payments relative to your income.

Employment and Income

A stable employment history, usually two years or more, can make your application stronger.

Loan Limits

limits set by Fannie Mae and Freddie Mac. For 2022, the limit is $647,200 for most areas but can be higher in high-cost locations.

Property Use and Type

Conforming loans can be used for primary residences, second homes, or even investment (1 to 4 units) properties depending on lender guidelines.

Documentation

You may need to provide bank statements, W-2s, Govt. ID and Social Security.  Information on other assets like retirement accounts and possibly tax returns.

 

Is It Right for You?

If you’re a first-time homebuyer or looking to refinance without diving into the complexities and higher costs of a non-conforming loan, a conforming loan might be a good fit. Just make sure you’re comfortable with the loan limits and other requirements before you commit.

Feel free to reach out if you have more questions or need clarification on whether a conforming loan is right for your situation.

Conventional Loan

Conventional loans are mortgage loans that are not insured or guaranteed by any government agency, such as the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA). They’re offered by private lenders like banks, credit unions, and mortgage companies, and they typically conform to the guidelines set by Fannie Mae and Freddie Mac.

Pros:

  • Flexibility: Conventional loans can be used for a wider range of properties, not just primary residences.

  • No Mortgage Insurance: If you can put down 20% or more, you can avoid paying Private Mortgage Insurance (PMI).

  • Loan Variety: They come in various terms, generally ranging from 10 to 30 years, and can be either fixed or adjustable rate.

  • Higher Loan Limits: Although they have limits, they are often higher than those for government-backed loans, giving you more buying power.

Cons:

  • Stricter Requirements: Generally, you’ll need a higher credit score and lower debt-to-income ratio to qualify compared to government-backed loans.

  • Higher Down Payments: While it varies, you might need a larger down payment for a conventional loan than for an FHA loan.

  • Cost: Interest rates may be slightly higher than for government-backed loans, depending on your credit profile and market conditions.

Conventional loan Requirements

Requirements

Explanation

Credit Score

Generally, you’ll need a credit score of at least 620 to qualify. However, to get the best interest rates, a score of 740 or above is often recommended.

Down Payment

You can secure a conventional loan with as little as 3% down but putting down at least 20% will help you avoid Private Mortgage Insurance (PMI).

Debt-to-Income Ratio (DTI)

DTI ratio that’s less than 43% to make sure you can handle the monthly payments relative to your income.

Employment and Income

A stable employment history, usually two years or more, can make your application stronger.

Loan Limits

limits set by Fannie Mae and Freddie Mac. For 2022, the limit is $647,200 for most areas but can be higher in high-cost locations.

Loan Types

Conventional loans come in various terms and types, such as fixed-rate or adjustable-rate, which can also affect eligibility.

Property Use and Type

The property will need to be appraised to confirm its market value meets or exceeds the purchase price.

Documentation

You may need to provide bank statements, W-2s, Govt. ID and Social Security.  Information on other assets like retirement accounts and possibly tax returns.

 

Is It Right for You?

Conventional loans are generally best suited for those with strong credit, a stable income, and the ability to make a sizable down payment. They offer a lot of flexibility but come with higher standards for qualification.

Feel free to reach out if you have more questions or need clarification on whether a Conventional loan is right for your situation.

FHA Loans

FHA loans are a type of government-backed mortgage insured by the Federal Housing Administration, a part of the U.S. Department of Housing and Urban Development (HUD). These loans are designed to make homeownership more accessible, especially to first-time homebuyers and those with less-than-stellar credit.

Pros:

  • Low Down Payment: One of the most attractive features is the low-down payment requirement, often as low as 3.5%.

  • Flexible Credit Requirements: FHA loans are more forgiving when it comes to credit scores, sometimes accepting scores as low as 580.

  • Rate Stability: FHA loans are usually offered with a fixed interest rate, making it easier to budget your monthly payments.

  • Refinancing Options: The FHA Streamline Refinance program makes it easier for homeowners to lower their interest rates and monthly payments.

Cons:

  • Mortgage Insurance: FHA loans require both upfront and ongoing mortgage insurance premiums, increasing the overall cost of the loan.

  • Loan Limits: Just like conforming loans, FHA loans have limits that vary depending on the region and housing market.

  • Property Standards: Homes purchased with an FHA loan must meet certain safety, efficiency, and habitability standards.

FHA Loan Requirements

Requirements

Explanation

Credit Score

FHA loans are more forgiving on credit scores, often accepting scores as low as 580. Some lenders may even consider scores between 500-579 with a larger down payment.

Down Payment

A down payment as low as 3.5% is usually required if your credit score is 580 or above. For scores between 500-579, a 10% down payment is typically required.

Debt-to-Income Ratio (DTI)

DTI ratio that’s less than 43% to make sure you can handle the monthly payments relative to your income.

Employment and Income

A stable employment history, usually two years or more, can make your application stronger.

Loan Limits

limits set by Fannie Mae and Freddie Mac. For 2022, the limit is $647,200 for most areas but can be higher in high-cost locations.

Property Use and Type

Conforming loans can be used for primary residences, second homes, or even investment (1 to 4 units) properties depending on lender guidelines.  The property must meet certain FHA appraisal and inspection standards related to safety and habitability.

Mortgage Insurance

Upfront and Ongoing: FHA loans require an upfront mortgage insurance premium (UFMIP) as well as ongoing monthly mortgage insurance premiums (MIP).

Documentation

You may need to provide bank statements, W-2s, Govt. ID and Social Security.  Information on other assets like retirement accounts and possibly tax returns.

 

Is It Right for You?

If you’re a first-time homebuyer, have a lower credit score, or don’t have much for a down payment, an FHA loan could be a viable option. However, the additional costs of mortgage insurance should be carefully weighed against the benefits.

Feel free to reach out if you have more questions or need clarification on whether a FHA loan is right for your situation.

USDA loan

USDA loans are a bit of a hidden gem in the mortgage world. Backed by the United States Department of Agriculture, these loans aim to support rural development and are a great option for those who qualify. Here’s the lowdown:

Pros:

  • No Down Payment: One of the most compelling features is the potential for no down payment, making it easier to get into a home.

  • Lower Mortgage Insurance: Compared to other loan types, USDA loans often have lower mortgage insurance costs.

  • Flexible Credit Requirements: While not as lenient as FHA loans, USDA loans do offer some flexibility on credit scores.

Cons:

  • Geographic Restrictions: These loans are designed for rural and some suburban areas, so they’re not available everywhere.

  • Income Limits: There are maximum income limits that vary by region and household size.

  • Property Requirements: The property must meet certain requirements, including being the borrower’s primary residence.

USDA loan Requirements:

Requirements

Explanation

Credit Score

Generally, a credit score of 640 or above is recommended for USDA loans, though some lenders may have more flexible requirements.

Down Payment

No down payment required

Debt-to-Income Ratio (DTI)

DTI ratio of 41% or less is usually preferred, though exceptions can be made for those with certain compensating factors, like a higher credit score or larger cash reserves.

Income Limits

Your household income generally must be at or below 115% of the median income for the area in which you’re buying. These limits can vary by location and family size.

Employment

A stable employment history, usually two years or more, can make your application stronger.

Geographic Eligibility

The property must be in a USDA-eligible rural or suburban area. You can check the USDA’s online eligibility map to see if a location qualifies.

Loan Types

Conventional loans come in various terms and types, such as fixed-rate or adjustable-rate, which can also affect eligibility.

Property Use and Type

The property must meet certain health and safety standards and pass a USDA appraisal.  USDA loans are only for primary residences, not investment properties or second homes.

Mortgage Insurance

There’s an upfront guaranteed fee, which can be rolled into the loan amount. There’s also an annual fee, which is usually lower than PMI for conventional loans.

Documentation

You may need to provide bank statements, W-2s, Govt. ID and Social Security.  Information on other assets like retirement accounts and possibly tax returns.

 

Is It Right for You?

USDA loans could offer an excellent avenue for those willing to live in less urban areas. They can especially be a game-changer for first-time homebuyers or those without a big down payment.  USDA loans come with income limits designed to help those who might not qualify for other types of financing due to income constraints.  While a credit score of 640 or higher is recommended, some lenders might be more lenient, making USDA loans accessible to those with less-than-perfect credit.  Between the no down payment option and generally lower mortgage insurance fees, USDA loans can result in lower monthly payments compared to other loan types.

Feel free to reach out if you have more questions or need clarification on whether an USDA loan is right for your situation.

VA loan

VA loans are a fantastic option for eligible service members, veterans, and certain spouses. These loans are backed by the U.S. Department of Veterans Affairs and come with some big benefits, as well as specific eligibility criteria. Here’s what you should know:

Pros:

  • No Down Payment: One of the biggest perks of VA loans is the option for zero down payment, easing the upfront financial burden.

  • No Private Mortgage Insurance (PMI): Unlike most other loans, VA loans don’t require PMI, leading to lower monthly payments.

  • Flexible Credit Requirements: Credit score requirements can be more lenient compared to conventional loans.

  • Competitive Interest Rates: VA loans often come with lower interest rates because they’re backed by the government.

Cons:

  • Funding Fee: While PMI isn’t required, a one-time funding fee is often rolled into the loan to support the program. This fee can vary based on your service history and down payment, if any.

  • Limited to Primary Residences: VA loans are only applicable to primary residences and not for investment properties or second homes.

VA loan Requirements:

Requirements

Explanation

Certificate of Eligibility (COE)

You’ll need to obtain this certificate from the VA to prove your eligibility for the loan.

Credit Score

While the VA doesn’t mandate a specific credit score, many lenders look for a minimum score of 620.

Down Payment

No down payment required

Debt-to-Income Ratio (DTI)

Most lenders look for a DTI ratio under 41%, though exceptions can be made.

Income Limits

No Income Limits

Employment

A stable employment history, usually two years or more, can make your application stronger.

Loan Types

VA loans come in various terms and types, such as fixed-rate or adjustable-rate, which can also affect eligibility.

Property Use and Type

The property must meet certain health and safety standards and pass a VA appraisal.  VA loans are only for primary residences, not investment properties or second homes.

Funding Fee

Most VA loan borrowers are required to pay a funding fee. This is a one-time payment that can be financed as part of the loan or paid in cash at closing.  The fee varies based on the type of borrower, the size of the down payment, and whether it’s your first VA loan or a subsequent one. Some are exempt from paying the fee, like veterans receiving VA disability compensation.

Documentation

You may need to provide bank statements, W-2s, Govt. ID and Social Security.  Information on other assets like retirement accounts and possibly tax returns.

 

Is It Right for You?

Well, this one’s a bit of a no-brainer, but these loans were designed with veterans and active-duty members in mind. The no down payment and no PMI features are significant perks for those who have served.  VA loans tend to have more lenient credit requirements. While individual lenders may set their own minimums, these are often lower than those for other types of loans.  No down payment and the ability to roll the funding fee into the loan amount mean you don’t need a big pile of cash to get into a home.

Feel free to reach out if you have more questions or need clarification on whether a VA loan is right for your situation.

Do I Qualify?

To qualify for a mortgage, lenders typically require that you have a debt-to-income ratio of “43/49.” This means that no more than 43% of your total monthly income (from all sources, before taxes) can go toward your new mortgage payment, and no more than 49.99% of your monthly income can go toward your total monthly debt (including your mortgage payment). VA and FHA loans even allow for higher debt ratios on a case by case basis.

Home Purchase Process

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