How to Finance Your Home

There are so many options for every type of home buyer. Before purchasing a home and understanding how you’ll pay for it, also consider do you want a fixed or adjustable rate, how many years do you want to pay on your loan, and what can you afford for a down payment? Fixed-rate mortgages will remain for the duration of the loan. Adjustable mortgages are designed with first-time homebuyers in mind who expect their incomes to rise substantially over the duration of the loan. The introductory rate is typically lowest during the first few years of the loan. Also take into consideration your creditworthiness and your debt-to-income ratio which will determine your ability to repay your loan. So now, which loan is best for you?

 Conventional Loans

These loans can be fixed or have an adjustable rate. They offer low closing costs and flexible payment options. Down payments are typically higher than other loan options. These loans have stricter requirements such as: higher credit score, lower debt-to-income ratios, and PMI (private mortgage insurance). Loan limits are set by Fannie Mae or Freddie Mac.

 USDA Rural Development Loans

These loans provide 100% financing or refinancing in a USDA designated rural area (towns with 10-25,000 residents; depending on the area). They offer no down payment, affordable rates, and no private mortgage insurance. Flexible credit and qualifying guidelines are available for new or existing homes.

 VA Loans

These loans help veterans purchase, refinance, or build homes through loans offered through the Dept. of Veteran Affairs. They offer no down payment requirement. The loans are not backed by the VA however, they are backed by qualified lenders. These loans are also specifically designed for veteran and their family members and the unique challenges this population possesses. Eligibility should be determined by the VA before requesting a loan and the eligible member will receive a certificate of eligibility.

 FHA Loans

These loans are attractive because of the interest rates associated with the loan which can be as little as 3.5%. There are fixed and adjustable rate options for those who qualify. FHA can assist first-time buyers, low-to-moderate income buyers, buyers with limited cash, and buyers with minor credit problems. These are easier to qualify for than a conventional loan.

 Construction Loans

These loans are designed for those building a new home or renovating. These are short-term loans but can also convert to a “permanent” mortgage loan. Lenders must approve this loan after seeing a construction timetable, construction plans, and budget for the project. During construction you’re required to pay interest. For the permanent loan option, interest and payment for both (construction and permanent loans) are grouped together for one payment; only one set of closing costs is necessary. Qualifying applicants typically need: good to excellent credit, stable income, low debt-to-income ratio, and a down payment of 20%.

 Residential Lot Loans

These loans assist in purchasing the lot or property your home, building, etc. will reside on. The land must be non-income producing and has a maximum of up to 40 acres when purchasing. A permit with appropriate zoning, survey report, access to a sewer, and other criteria may be required.

Jumbo Loans

These loans cover larger amounts than conventional loans. These loans offer fixed and adjustable rates. These loan limits are set by Fannie Mae and Freddie Mac. You must be able to prove you have the income and liquid reserves to cover payments. Traditionally, borrowers will need recent pay stubs within the last 30 days and two years’ worth of tax forms to prove income.

 Bridge Loans

Short-term, temporary loan used to secure a purchase until longer term financing can be arranged. The intention is that funds will repay the loans within a certain period. Ex: if your need to move before selling your current home but need quick funds to purchase your new home, you can use a bridge loan. Once you sell your old home, you’d use those funds to repay the bridge loan. These loans are generally for up to one year and have high interest rates.

Please, please, please due your due diligence in researching grants and programs available in your area. Many states and counties have special programs for first-time homebuyers and low-income homebuyers. A national program that has helped many achieve homeownership is NACA.

 Neighborhood Assistance Corporation of America

NACA is an avenue for a variety of people wishing to become homeowners. You must pay a monthly “subscription” fee for their services and attend a workshop before you begin. As part of their program, you must also advocate on their behalf. NACA members do not need a down payment, closing costs, fees, or perfect credit. Members can buy down their interest rate. NACA’s members also have access to the NACA’s Home and Neighborhood Development ("HAND") Department and NACA’s Membership Assistance Program (MAP).

Your realtor should have access to a variety of loan options. Your realtor should be knowledgeable about a variety of assistance programs that you may qualify for. You may not be the expert, but it is your duty to research so that you can make the most affordable decision when purchasing your home. Happy Homebuying!

-Chantelle