Everything a First-time Buyer needs to know about Financing Your Home
It is the American Dream, no longer paying rent and buying a home of your own. You look online and find the perfect home for sale. You give me a call and we go to see the house. You want to put an offer in and the first thing I tell you is that it is best to be pre-approved for a loan before we proceed. I give you the number of one of my loan partners and you call to get pre-approval. The loan officer gives you several options....
He gives you options and begins to explain the products available and you wish you had a basic understanding to make the process easier. A little understanding of the vocabulary they use and knowledge of the products helps you and your loan officer to map out what the best options for you are. Here are five options to be aware of and ask the loan officer about.
This type of homeowners loan you will qualify for will depend on your credit worthiness and the amount you have for a down payment. A fixed rate conventional loan is available to people with a very good or excellent credit score (700 or above). It will also require a large down payment, in the neighborhood of 20 percent of the total price ($20,000 for each $100,000). A fixed interest rate means you will have the same payment for the life of the loan. A low interest rate means a lower payment and will save you from the volatility of an adjustable rate mortgage.
Down Payment Assistance Loans
A down payment assistance loan combines with a conventional first-time loan to provide 100 percent financing for a first home. This will allow a first-time buyer to secure a loan that includes a down payment and closing costs in addition to the cost of the house. Many states have programs to facilitate this kind of loan, check with your state housing authority to see if it is available to you. In Maryland it is called the Maryland Mortgage Program and includes the House Keys 4 Employees (HK4E), Builder/Developer Incentive Program (BDIP), Community Partner Incentive Program (CPIP), Downpayment and Settlement Expense Loan Program (DSELP) and BRAC Match.
Graduated Payment Loans
A graduated payment loan can take one of two schedules. A schedule is a table detailing each periodic payment on a mortgage, as generated by an amortization calculator. Amortization refers to the process of paying off a debt over time through regular payments. A portion of each payment is for interest while the remaining amount is applied towards the principal balance. They are for first-time buyers with low-income whose earning potential will increase over time. An anticipated increase in earnings will allow the borrower to pay a larger monthly payment. After a set period the payments for the loan increase. This continues for five to ten years at which point the loan stabilizes for the time left on the loan. The first type of graduated payment loan doesn't include interest payments in your monthly payment amount. The second includes both principal and interest. Be aware that your monthly payment could increase significantly and there is no guarantee your salary will keep pace.
The Federal Housing Administration offers loans to first time buyers with a minimum credit score (can be as low as 600 under certain conditions) and a down payment equal to 3.5 percent ($3500 for each $100000 borrowed) of the amount to be borrowed. The loans calculate in property taxes and iprivate mortgage insurance to the monthly payments. The rates are fixed and the terms of the loan can last up to 30 years
The U.S. Department of Veterans Affairs (VA) offers long-term financing to eligible American veterans or their surviving spouses (provided they do not remarry). The basic intention of the VA direct home loan program is to supply home financing to eligible veterans with 103.15 percent financing and no private mortgage insurance added to your monthly payment. There are restrictions as to location of the home being purchased.
Knowing your options will help you to choose the loan that is best for you. Remember to read all the small print or have a qualified loan specialist walk you through each loan before you sign on the dotted line.
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This page is for informational purposes only and should be taken as financial advice. Contact a certified mortgage specialist / professional for further information.