WHAT KIND OF LOAN SHOULD I GET FOR MY NEW HOME?
By Aleta Boudreaux, Broker, Azalea Real Estate Agency
It is better to own your home than to rent a home. You will be investing in your future by building up equity in real estate. Grand Bay and South Mobile County are growing and now is the best time to take advantage of still moderately priced properties.
The first step to investing in a home is to learn about loans.
While your REALTOR© or agent can find you a home and sometimes make suggestions as to the types of loans available, a loan officer or mortgage broker will be able to tell if you qualify a loan, and determine which type of loan will cost less both short and long-term. It is always good to ask for a side-by-side cost analysis.
Most residential loans are either conventional loans, which are loans not insured or guaranteed by the government, or government loans which are insured or guaranteed by a government entity.
FHA loans are most common and are backed by the Federal Housing Administration. VA loans are backed by the Department of Veteran Affairs. A USDA loan is a mortgage loan offered to rural property owners by the United States Department of Agriculture. Conventional loans are not backed by the government and have a broader range of types of homes that can be financed. Jumbo loans are loans just that, they are loans that are above the normal price range. Unless you’ve got a big movie deal or won the lottery, you are not likely to need a Jumbo loan.
All these loans have different guidelines and qualifications for both the buyer and the home itself. That is why getting pre-qualified for a loan is so important. By talking with a lender, mortgage company or bank loan officer, they can tell you the best loan scenario for you as a buyer, which is mostly based on your credit score and your income and expenses.
If you are a new buyer, and have a little money to invest in a home, an FHA loan may be the best loan for you. FHA loans are the most forgiving of credit problems and in many instances you can finance up to 96.5% of the cost of the home. You can finance some of the upfront costs but they will be added into your loan to pay monthly, just like the taxes and home owners insurance. With some programs you can also finance your down payment or you may be able to get a grant for the down payment with down payment assistance program through the County Grant Programs.
For the normal FHA loan the home has to basically be safe, sound and sanitary. For homes that need repair, there the FHA 203k renovation loan program provides funds for both the purchase and renovation of a home packaged into one mortgage
loan. Once the purchase of the home is closed, renovation funds are held in escrow to pay for pre-determined renovation work done by approved renovation contractors.
VA loans are made to those who have served in the military or sometimes, their spouses. There is no down payment but there are lender’s fees and there are strict guidelines about what the veteran is allowed to pay and what the seller must pay in closing fees. There are no strict limits on the credit eligibility or debt to income ratios of the borrower.
VA loans are limited to active duty soldiers who have served at least 90 continuous days, retired soldiers who served 90 continuous days during wartime or up to 24 months during peace and National Guard and Reserves Members serving 90 days of active service or 6 years otherwise. Soldiers cannot have been dishonorably discharged. Spouses of soldiers are eligible under certain conditions
A USDA loan is basically set up for home in rural areas for lower income individuals. You can find out about the income levels and location qualifications by asking the lender or by going to the USDA website at http://eligibility.sc.egov.usda.gov. There is no down payment required and often the buyer can finance all the closing costs. Loans for new as well as existing properties. Credit guidelines are flexible, and in Alabama there is no maximum amount for the home loan.
A conventional loan requires higher down payments, better credit and lower income to debt ratios to qualify when compared to FHA loans. There are a variety of conventional loans backed by Freddie Mac or Fannie Mae (non-government loans.) Buyers can borrow up to 95% of the home’s value, there is no mortgage insurance required with 20% down payment and rates can vary from lender to lenders. Conventional loans can be used to finance just about any property, whereas some houses, condos or mobile homes aren’t approved for FHA, VA or USDA financing. Conventional loan are available through most all banks and lenders so buyers can shop around for the best interest rates.
Ask your local REALTOR© at Azalea Real Estate and take advantage of years of sales and marketing experience. Visit www.azalearealestate.us to preview homes or contact Aleta Boudreaux at 251-656-4576 for more information on selling or purchasing a home and to tour homes in South Mobile County.
©Aleta Boudreaux, 2017.