What type of Loan is right for me?
FHA loans accept lower credit scores and are easier to qualify for, however there are limitations as to how you can use the property. There is also a limitation as to how much you can borrow based on the region of the country the home is located.
Upsides of an FHA Mortgage Loan
- Low down payment of 3.5%
- The 3.5% down payment applies to credit scores as low as 580
- With a 10% down payment, a score of 500 can qualify
- Lower mortgage insurance rates than conventional lender mortgages.
FREQUENTLY ASKED QUESTIONS FOR FHA
ARE FHA LOANS JUST FOR FIRST-TIME HOME BUYERS
FHA loans are for anyone who can qualify for the program and they are not just for first time home buyers. However, the majority of the individuals who do apply for an FHA loan happen to also be first time home buyers.
DO COLLECTIONS NEED TO BE PAID OFF BEFORE GETTING AN FHA LOAN
Collections do not have to be completely paid off prior to applying for an FHA loan if they have not reported within in the last year. In addition, medical collections are handled differently than other types of collections. Do not pay off anything until you speak to a mortgage specialist and get guidance from them on how to proceed.
CAN I APPLY FOR AN FHA LOAN WITHOUT MY SPOUSE?
You may apply for an FHA loan without your spouse. However, the lender still may want to see your spouse’s credit report. For refinances, local laws will also require that your spouse sign a document acknowledging that you are taking out a mortgage against your mutual primary residence.
CAN THE SELLER PAY MY CLOSING COSTS
The FHA guidelines permit the seller to contribute up to 6% of the sale price towards the buyer’s closing costs. This is often managed during the negotiation process and is a great option for home buyers who are limited on cash.
Obviously home loans made available through the Veterans Administration require the borrower to be active or former military personnel (including reservists). VA loans are also available to the surviving spouses of a veteran. The advantages are significant and are for qualified persons looking to purchase of a residential property for their personal use.
Upsides of a VA Mortgage Loan
- No down payment.
- No credit score requirement.
- No mortgage loan insurance requirement.
- Lower interest rates and a higher debt to income ratio is allowed.
- No penalty for making early payments.
FREQUENTLY ASKED QUESTIONS FOR VA
Is the surviving spouse of a deceased veteran eligible for the home loan benefit?
The unmarried surviving spouse of a veteran who died on active duty or as the result of a service-connected disability is eligible for the home loan benefit. In addition, a surviving spouse who obtained a VA home loan with the veteran prior to his or her death (regardless of the cause of death), may obtain a VA guaranteed interest rate reduction refinance loan.
Are There Closing Costs Associated with a VA Loan
Yes, as with many loan programs, VA loans do come with some of the standard closing costs and fees. One fee that is specific to VA loans is the VA funding fee. This one-time fee is paid directly to the VA to help keep the loan program going. The size of the VA funding fee depends on a few factors. For first-time use, the funding fee is set at 2.3% of the total amount borrowed. The funding fee increases to 3.6% for borrowers who have previously used the VA loan program but can be reduced by putting money down. Veterans who are deemed to be more than 10% disabled are exempt from this fee. There are a few ways you can avoid paying the VA funding fee out of pocket. You can negotiate to have the seller pay this fee, or you can roll the funding fee into your mortgage and finance it over the life of the loan.
How Many Times Can I Use My VA Home Loan Benefit
As many times as you like! There’s no limit on how many VA loans you can take out throughout your lifetime. The only requirement is that VA loans must be used only to purchase or refinance a primary residence. In addition, your entitlement (the amount the VA is willing to guarantee for your loan) is finite. Once you’ve used it up, you cannot take out another VA loan without restoring your entitlement. Normally, you’d have to sell the home that is financed under the VA loan to restore your entitlement. However, the VA offers a one-time entitlement restoration for individuals who have paid off their VA loan but still own their property. This perk can be used whether the loan was paid off entirely or refinanced into a different loan, such as a conventional loan
USDA Home Loans
If you’re looking for a home in a rural area then consider a loan through the US Department of Agriculture. Advantages are strong and concerns are consistent with other home loan options.
Upsides of a USDA Mortgage Loan
- No down payment.
- Fair Credit Okay with scores as low as 620 possibly qualifying.
- Closing costs can be financed.
- No penalty for prepayments
- Your interest rate can never go up. It’s fixed.
- No maximum loan amount, no need for ‘qualifying assets’.
FREQUENTLY ASKED QUESTIONS FOR USDA
Is a modular home on a permanent foundation eligible?
Yes, for property eligibility purposes, modular homes are treated the same as stick-built homes.
Is the USDA Rural Housing program only for first-time home buyers?
No! the program can be used by any qualified home buyer – not reserved for only first time homeowners. However, applicants that currently own a home that they plan to retain will have additional restrictions.
Is there a limit on seller concessions?
Seller contributions (or other interested parties) are limited to 6% of the sales price.
Are medical collections required to be paid?
No, Rural Development does not require medical collections be paid for any type of submission
What does the USDA require for employment eligibility?
If you’re still working, you must establish employment to be eligible for the USDA loan, and most lenders will require a minimum of two years of steady employment. If you are self-employed, you are eligible, but will be required to provide two years of federal tax returns to verify your income. Retirees may be able to obtain a USDA loan provided they have sufficient stable income.
These types of mortgage loans offer greater flexibility and buyer freedom when it comes to how the property can be applied. You can buy a home for yourself or as a second vacation home or as income/rental property. The four primary components, beyond the down payment, of a conventional mortgage are; principle, interest, taxes & insurance (PITI).
Upsides of a Conventional Mortgage
- Down payments can be as low as 3%
- A down payment of 20% waives the requirement for Private Mortgage Insurance (PMI).
- Requirement for a PMI can be cancelled when the Loan-to-Value of your mortgage is in reaches 78%. This means, once you reach a point where you’ve paid off 78% of the assessed value of your home, you’re no longer required to have private mortgage insurance.
- A conventional mortgage can be applied to a second home and/or investment properties.
FREQUENTLY ASKED QUESTIONS FOR CONVENTIONAL
What Types of Homes Can I Purchase With Conventional Financing?
A conventional mortgage allows you to purchase single-family homes, condos, investment properties, townhomes, lofts, and second vacation homes. Pretty much anything that is a standard housing type in your area.
Will I Have Mortgage Insurance?
Yes (usually), unless you put 20% down. If you are putting down less than 20%, mortgage insurance will be required. However, when the loan to value (LTV) reaches 78%, it will automatically fall off, reducing your monthly note. With that said, the amount of private mortgage insurance (PMI) you will pay is wholly based on the risk your mortgage presents to the bank/and or lender
How Much Can the Seller Pay Towards My Closing Costs?
Typically, the seller can pay 3% of the sales price towards closing. If you put a down payment over 10% they can pay up to 6% towards your closing. This is assuming that your home purchase is for a primary residence. Investment properties are capped at 2% allowable seller-paid closing costs. None of the seller credits can be used towards the down payment. The down payment needs to come from your own funds and/or gifts.
