Home Financing 101
Ever wonder which home loan is right for you? Curious about Interest Rates and Down Payment Assistant Programs? Well, you’re in luck! This week, we talked with Justice Roberts, Senior Loan Officer at Paramount Residential Mortgage Group, to give an overview of these topics and more. Contact us today to chat about financing and start your journey to homeownership!
When thinking about financing a home, there are 3 important factors to consider:
#1 Programs
#2 Down Payment Assistance
#3 Monthly Payment
#1. Programs
There are several loan programs that exist, and many variations of each of those loan programs.
The first we’ll discuss is FHA Loan. FHA is short for the Federal Housing Administration. Benefits of the FHA loan include: a low down payment requirement of only 3.5%, and a low credit score requirement of 620 (in some cases even lower, however this is the typical benchmark).
Another excellent loan option is a Conventional Loan. Although Conventional loan rates are typically higher than other loans, the overall monthly payment will be less for you because of lower upfront and monthly fees. Also, there are often fewer loan requirements for a Conventional loan. This is because you are putting a bit more money down (such as 5%), and your credit score is higher, which tells the lender that you are more likely to make your payments.
Moving right along to another fantastic loan option: a VA Loan. This loan is made specifically for individuals that are currently serving or have served in our military force. There are many incentives such as no money down, a credit score requirement of a 620, and lower monthly fees. If you are a veteran, we highly suggest seeing if this loan would be a good fit, as it is an amazing option!
Last, but definitely not least, is USDA: This loan program is a United States Department of Agriculture loan. It is another great zero down loan program for customers looking to move to more rural areas.
Two things to consider for a USDA loan are:
- Rural areas only, which mean the Property has to be in a certain location in order to qualify.
- AND Income Caps, which mean you have to make under a certain amount in order qualify.
Based off how many people are living in your home, these numbers will be different. Make sure to check with your lender in order to find out if this a viable option for you.
#2. Down Payment Assistance
DPA’s can be paired with several loan options, such as an FHA loan, a Conventional Loan or even a VA or USDA loan. The greatest benefit of having down payment assistance is the fact that you are not required to come up with a down payment! They also only requiring a 620-credit score. There are a few things to consider to see if a Down Payment Assistance Program is right for you:
- Qualification Limits
Because you are getting all your funds from the Down Payment Assistance, you have less skin in the game. Because you are not coming up with a down payment on your own, there are some tighter restrictions on what the bank will lend you.
- Interest Rate
Every program has different interest rates, and this is certainly true for Down Payment Assistance Programs. You will notice that rates are noticeably higher than the current market.
Though it’s great that you are not required to come up with a down payment when using a Down Payment Assistance Program, it’s critical that you know all the facts before choosing this program!
#3. Monthly Payments
There are several factors that make up your monthly payment:
Principal and Interest – This amount goes to pay both the amount that you owe the bank, as well as the cost to borrow it.
Taxes – This cost will vary property to property depending on how the county determined the cost for the specific parcel.
Home Owners Insurance – This is required for every property as it protects you and the lender if something were to happen to your property.
Mortgage Insurance – Mortgage Insurance is a lender’s insurance policy in case of default. Typically, every loan will require mortgage insurance in some form unless you have 20% equity. Each loan program has a different name and cost for this. There are many options depending on your loan program, so it is best to go over mortgage insurance with your lender specifically.
Home Owner Association Dues – HOA fees are calculated regarding your monthly obligation. This is the only item on this list that is not directly a part of your mortgage payment. If your property has an HOA, you will pay directly to the HOA and it will be a separate payment from your monthly bill.
Ready to chat to a lender to get qualified today? Contact us at 253-357-HOME or hello@theoryre.com to get started!
Thanks for reading this week’s #TheoryThursday!
