Financing
When it comes to paying for your new home, you have a wide variety of financing options from which to choose. Your home mortgage may come through the seller or from a financial institution such as a mortgage company, bank, credit union, or savings and loan. Listed below are some of the primary types of home loans available today. Ask a Smart Move associate or your lender for current market rates and more detailed information on loan products to suit your needs.
Please take a look at our Home Loan Calculators to run different scenarios of your personal financing options.
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Common Home Loan Programs
Conventional
Conventional loans can be obtained with as little as 0 percent down. If the down payment is less than 20 percent of the value of the home, it may be necessary for the loan to have Private Mortgage Insurance (PMI) to protect the lender. A conventional loan is typically paid off in 15 or 30 years. The payments on a fixed rate conventional loan stay the same for the life of the loan. Adjustable rate mortgages (ARMs) may have low initial interest rate with payments that may decrease or increase over time. ARMs are popular with first-time buyers and buyers who plan to move or refinance in three to five years.
FHA
The Federal Housing Administration insures loans, making lenders willing to finance home purchases on favorable terms. Down payments with FHA loans can be low as 3 percent. Discount points may be paid by either seller or buyer. Terms vary by lender; however, the FHA charges an up-front Mortgage Insurance Premium, similar to Private Mortgage Insurance that can be financed in the mortgage amount or paid in cash at settlement. The borrower must also pay an annual Mortgage Insurance Premium of 0.50 percent, which is collected monthly. For mortgages with terms more than 15 years, the annual mortgage insurance premiums will be canceled when the Loan to Value ratio reaches 78 percent, provided the mortgagor has paid the annual premium for at least 5 years.
VA
Veteran’s Affairs makes loans available to qualified veterans of the Armed Services, Reserves and National Guard. Recent VA guideline changes allow for VA loan amounts up to $417,000 with 0% down payment. Underwriting guidelines are flexible. The Department of Veterans Affairs requires a funding fee, which varies from zero to 3.3% of the loan amount, depending on your current veteran status. The funding fee is added into the total loan amount, so the borrower is not required to pay out of pocket. A VA loan can be combined with second mortgages and may be assumable (upon qualifying) by a future buyer. The VA has released a hybrid ARM product. Veterans now have a choice of either a fixed rate or an adjustable rate VA mortgage.
Non-conforming
A non-conforming loan provides home buyers with products that do not conform to the normal FHA/VA and conventional lending guidelines. These unique loan products are tailored to fit specific financial situations, including buyers with bankruptcies less than 2 years from discharge; no income/no asset verification loans; buyers with late payments on a previous or current mortgage; programs for self-employed based on bank statements, or excessive credit problems, but sufficient liquid assets to work with.
Second mortgage
A second mortgage may be made by the seller or by a commercial lender, sometimes to eliminate PMI payments on a conventional loan of more than 80% loan-to-value. The term is typically 5- to 15-years. Sometimes interest-only payments are made until the term date, when the balance is due.
When you're ready to think about buying your new home, make sure you and your Smart Move associate explore these primary loan options and the dozens of others available. Our lending partners will be able to find the right one for your needs.
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