Cue the music: Money, Money, Money, Mon-ey, M O N E Y! This month, we are chatting financing! Now that your know how to be A Competitive Buyer in a Seller’s Market, and you’ve been saavy and learned to Make an Offer they Can’t Refuse, it’s time to look at financing your new home . . .
Rounding out her trio of posts, this month, our Buyer’s Specialist, Kim Nix, taps into her knowledge of loans, lenders, and personal experience to show you just want to do! Let’s take a look at the different kinds of financing available to us as buyers:
Cash: If you have the cash to pay for your new casa, we say go for it! You don’t have to deliberate over loans or worry about credit scores. Hand over your pennies, grab your new keys and enjoy your lovely house!
FHA Loan: The FHA (or Federal Housing Administration) loan is touted as one of the more lenient loan programs available. This type of loan boasts low downpayments–3.5%, low closing costs, and easy credit qualifying (FICO scores down to 600 are permitted, but scores of 640 allow for better rates and terms). This loan program is available for 1-4 unit properties (ie: your stand-alone home, or that cute duplex). One of our recommended lenders says that “this is a great loan program for people that are either short on funds to close; need help from a seller (who can contribute up to 6% of the buyer’s closing costs/prepaids/points); or, have had some credit challenges.” So, what is the downside to this kind of loan, you ask? The negative point about this loan is that Mortgage Insurance is for the life of the loan, so if you one day want out of that insurance, refinancing is the only way to go.
Conventional Loan: In terms of down payments and credit scores, a Conventional Loan is going to require you to step it up a bit! The down payment for a Conventional Loan requires a bit more up front than the FHA loan–5%–unless the buyer is a first-time homebuyer, and then their down payment could be as low as 3%. This type of loan also requires a higher FICO score–640 is required but you’ll find better rates if your score is 740 or better. The good news is that, in most cases, the mortgage insurance is lower and your mortgage insurance can disappear altogether once your loan-to-value ratio reaches 80%. The even better news is that you won’t have mortgage insurance at all if you are able to put 20% on your new home! Save those pennies–it will surely pay off!
VA Loan: The Veterans Administration Loan is one of the best loans out there and is only available to folks who have served, who are serving in the military, or eligible surviving spouses of those who served. With a VA Loan, there is NO down payment, your home does not have to be VA approved (unlike the FHA loan), and there are no income restrictions–but a 620 FICO is required. Additionally, there is no monthly mortgage insurance. One of our lenders shares that the drawback to this type of loan is that “they can take a little bit longer to originate, process, underwrite, and fund because a VA certified appraiser must perform the appraisal. They usually take two weeks to deliver the appraisal back to us, and can be more stringent on the condition of the dwelling than with conventional loan.” If you have served our nation, thank you! And, this, my friends, is a fantastic option for making that charming house you’ve had your eye the best spot to hang your American flag!