Every time I talk with a new buyer we always talk about loan options. There aren’t as many loan options as there once were, but there are still several options. The majority of my clients are opting for a FHA loan. I want to touch on home loans and the differences between them. The first thing to know about is something called mortgage insurance. This is an insurance that lenders require to be added onto the loan in order to insure the lender in case of mortgage default on the loan. The lender requires this mortgage insurance, also sometimes referred to as PMI or MIP, on every loan that does not have at least a 20% down payment. On a home loan of $100,000 the mortgage insurance can range from $50-$100 per month, depending on what type of loan you have and your credit score.
The most popular loan for my clients is FHA. The FHA loan only requires 3.5% down and that is why most of my clients like this loan. There is a fee tacked onto the loan amount in order to make the mortgage insurance lower each month than a conventional loan. FHA loans are a little picky about the condition of the house they’ll loan on. If the house is in bad shape, has chipping paint, ripped up carpet, has a roof at the end of its life span, or other obvious defects, then the house probably won’t pass an FHA appraisal. One nice thing about FHA loans is that a buyer can have a parent as a co-signer or help with down payment and still get a great interest rate. FHA is also easy to qualify for because their credit score requirements aren’t as high/strict as conventional loans. For houses that need rehab, there is an FHA loan called a 203K loan. It has more steps and is a bigger process, but it also allows a buyer to purchase and rehab a house that needs work, for only 3.5% down.
Another common mortgage loan is a conventional loan. This is the best type of loan to use if you have 15-20% down payment. The minimum down payment for this type of loan is 5%. Mortgage insurance for this loan is higher each month than with FHA and the loan is a little more difficult to qualify for than FHA. Remember, if you have 20% down payment there is no mortgage insurance for a conventional loan. This type of loan allows some flaws with the house in question. Chipping paint is usually just fine as well as multiple other defects.
VA is another loan that only military veterans can qualify for. This is a great loan because it requires $0 down and no mortgage insurance fee. If a person is a veteran, this is the way to go.
There is also a loan called Rural Development. Rural Development is terrific because it requires $0 down and also has low to no mortgage insurance. Such a great deal, but only works in a town of less than 20,000. There are also limited amounts of money to support this loan, so sometimes it is available and sometimes it isn’t.
Lastly, there is a program called Homepath. Homepath mortgages can only be done on a Homepath approved property. These will always be foreclosures. Homepath requires 3% down payment, no mortgage insurance, but the rates tend to be a little bit higher than any of the other loan types. Homepath can be great for properties that aren’t in the best of condition because they do not require an appraisal.
If you are interested in finding more information about mortgage interest rates or learning more about monthly payments, please find this information at http://www.searchlawrence.com/Lawrence_Kansas_Home_Buyers_Resources.php