OK, you have decided to buy a home! Congratulations! You are sitting with a stuffy guy wearing a tie, and he is dropping acronyms on you like an MC drops the mic at the end of a cool song.
What is HUD? What is LTV? What is MI? What is EMD? What is HOI? What is FNMA?
One thing is certain, the lending industry is extraordinarily in LOVE with acronyms. There is an acronym for just about everything.
A lot of it is simple – HUD is the Department of Housing and Urban Development. HOI – Home Owners Insurance…
Some is irrelevant to you – LTV is “Loan To Value” – what does that mean? In plain English, “how much money are you putting down”? If you are putting down 20% on the purchase of your home – your LTV is 80%. The lender and I care about that, but you don’t care about the terminology – just the fact that you know how much you need to bring for your down payment and closing. 😉
Whatever the acronym stands for, the key is having a loan officer that explains it all to you in easy to understand terms. That brings us to the real question – What loan is right for YOU?
You may think to yourself – “Self, I don’t want to pay MI (Mortgage Insurance) and I don’t want to have an escrow account (an account where your tax and insurance payments are safely tucked away)!”
The reality is that may or may not be a choice left up to you – if you have suspect credit and limited funds to put down on the purchase of a home, you may end up in a program such as FHA where there is ALWAYS Mortgage Insurance and an Escrow Account is mandatory.
BUT – if your credit is strong, many doors can open up for you. If you put 20% down payment and qualify for a Conventional Loan – there is no MI required and you can choose to waive the escrow account for a small cost. Also, there are some programs with no MI with LESS than 20% down now, if you qualify.
The general rule is – the better your credit, the easier it will be to qualify for the loan you WANT. The typical borrower in the market these days has a 720 or higher credit score and is putting more than 5% down.
That being said, if you find yourself with a lower credit score and need help from mom & dad or your tax refund in order to afford the down payment – there is still a program for you!
Here are some of the main mortgage programs in the industry today and a little bit about each:
FHA – you can put as little as 3.5% down. The down payment can typically be a gift from a family member (even an employer can gift funds if it’s in the employee handbook!). Credit doesn’t have to be great – you can even qualify with major derogatory events such as Bankruptcies, on your credit report (depending on the type of BK and how long ago). This loan does have MI and you must escrow your tax & insurance payments so it will be collected with your monthly payment. OK to buy Singe Family, Condo, Multi-Unit property as long as it is your Primary Residence.
VA – If you served in any of the military branches (Army, Navy, Air Force, Marines, Coast Guard – even National Guard) – you may qualify for a home purchase with NO Down Payment! There is no MI on a VA loan, although there is a VA Funding Fee charged up front – this is typically waived if you have a service related disability. OK to buy Singe Family, Condo, Multi-Unit property as long as it is your Primary Residence. Even if you are putting money down, this is a strong program if you served our country.
USDA – Not as common as it used to be, but at one point I was part of a team closing over $8 million per month in USDA loans. These are loans for properties outside of a major metropolitan area. If you live in the city or suburbs, chances are you won’t be able to go for this program. If you are buying outside of a metro area, you could qualify for a home loan with NO Money Down on this program as well.
Conforming – This is your basic 3-20% down payment loan with decent or good credit. These may or may not have MI on them, and you can choose if you want to escrow taxes and insurance. These are the most common loans in the industry – you can buy a single family home, condo, multi-unit property… and have a nice low payment hopefully! You can also buy investment properties or a 2nd Home using these programs.
Jumbo – If you are looking at homes that are over the FNMA loan amount limits (most of the country is limited to $424,100 before it becomes a High Balance or JUMBO loan) – then you are going to have to qualify for a slightly different program. These programs can typically go into the millions (I have lenders than go as high as $2.5 Million loan amount!). Some programs do not require MI, and you can put as little as 10% down on these. The rates may not be as low as FHA or a normal Conventional loan, but if you are in the market for a $2 million dollar home with 10-20% down, this is the program for you.
Alternative Programs – There are a lot of programs making a comeback… bank statements, no ratios, foreign nationals, etc… if you find yourself in a unique situation it’s best to reach out to a mortgage professional to find out what kind of program you can use to buy a home.
So – the best course of action to find out what your BEST loan option is… is to sit down with a Loan Officer for a pre-approval and go over the whole range of programs. You might be surprised what you will qualify for. And you might not realize that buying that dream home could be easier than you thought!
Contact me with any questions!!!