No time in the history of the U.S. has there ever been a better time to be a home buyer. Home prices are locked in a major depression and the market is flooded with desperate sellers looking to move homes that they paid significantly more for just a few years back. Home loans are still readily available and there are still options out there for those who have timed the housing market right. The first question on most borrowers minds is which of the many home loans options is the best for me. This can vary based on a few factors, for most of us shopping for a home loan there’s the issue of a down payment.
The Federal Housing Administration or FHA has several programs to help those of us who want a home loan but just don’t have the twenty percent that many lenders want as a down payment. FHA programs are not all the same and there are options depending on your particular situation. The most popular of the FHA home loans program is the 203(b) program. This program allows a borrower to finance up to 96.5% of the selling price which in turn allows you to make a significantly smaller down payment and buy more house than you may have been able to otherwise. These types of home loans do have their drawbacks. The borrower is expected to pay premium mortgage insurance or PMI. What is PMI? PMI is what funds the Federal Housing Administration and is an added cost for the borrower on top of principal and interest. The good news is this isn’t required thru out the term of the home loan. PMI is only paid until the loan falls below the 78 to 80% of the loan to value of the home. Want to avoid PMI? Save up the 20% necessary to get a conventional home loan. Where do you go to find these type of home loans? Most banks are still in the business of FHA loans but their rates can vary and so can credit requirements. FHA has their requirements for credit as do banks.
Conventional home loans are the most common type of mortgage. Most lenders today have very similar stipulations for conventional home loans and that is that the borrow brings a 20% or greater down payment to closing. So if you wish to purchase a home for $100,000 your bank would require you to bring $20,000 as a down payment to closing. Why does your bank want you to bring a down payment? These types of home loans are considered much less risky for the lender because if you default and can no longer pay your mortgage they will be able to sell the home much easier and recoup their money if they’re selling your home at 20% less than its market value.
There is a third option for many Americans that have served in our nations armed forces and that is Veterans Administration Home Loan Guaranty or what they’re more commonly referred to as VA home loans. This allows those who are eligible to borrow money from a lender with up to 25% of it being guaranteed by the VA in turn exposing the lender to less risk and allowing the borrowers to get home loans with no money down. Credit requirements and the ability to pay are still looked at but this will allow many Americans to get into the market right away instead of waiting years to save up the 20% needed for a conventional loan or pay the PMI that an FHA loan would require.