If you’re like most buyers, a home is the most expensive purchase you’ll ever make, and you’ll probably need some form of financing. In order to qualify for a mortgage to buy a home, you’ll need good credit, a pattern of paying your bills on time, and a typical maximum debt-to-income ratio of 45% or less (gross monthly income compared to the minimum payments on all recurring debts including your new house payment). Some lenders have stricter guidelines, so the lower your debt-to-income ratio, the better are your chances of a loan approval.
There are loan programs available with down payments as low as 3.0% to 5% of the purchase price. The VA and USDA loan programs offer no down payment at all. In any case, you’ll still need some savings to pay for closing costs, moving expenses and an earnest money deposit on a home. It is also wise to have some cash reserves on hand after you have completed your purchase to cover unforeseen expenses.
What Can You Afford to Buy?
Housing prices and rents vary from one location to another. In some markets, buying a home can cost the same or even less than renting. Remember, when you’re a homeowner, you also need to include costs for homeowners insurance and property taxes.
When calculating your housing expense, bear in mind the difference between what you can qualify for and what your comfortable paying for. A lender will tell you how much you can borrow, but that lender won’t know how much you like to spend on recreation and travel or your plans to reduce work hours when you have a family. Once you’ve thought through the emotional and financial aspects of becoming a homeowner, your next steps should be to find a reputable REALTOR® to become your partner in the home-buying process and to meet with a reputable lender who can discuss your options for financing your purchase. There are many lending institutions that offer a variety of mortgage products. Financing options and rates can vary widely, so it is important to do your research and shop around to ensure you get the mortgage that best meets your needs at the best price. I would be happy to refer you to some excellent mortgage professionals. Call me at 541-778-1114.
The fixed-rate mortgage is the most popular mortgage program in use today. Fixed-rate loans offer the borrower a fixed interest rate for the life of the loan, typically 15 to 30 years. Borrowers have peace of mind knowing that their monthly principal and interest payments will not change over time. Conventional fixed-rate mortgages require certain down-payment and debt-to-income ratios to qualify. Fixed-rate loans are especially attractive to buyers who plan to stay in their home for more than a few years.
Adjustable Rate Loans
With an Adjustable Rate Mortgage (ARM), the interest rate changes periodically, and payments go up or down accordingly. Rates are tied to an index that reflects the cost of money at any given point in time. Generally speaking, lenders charge a lower initial interest rate for the ARM than for the fixed rate mortgage. If you are expecting interest rates to decrease in the future, or if you are trying to maximize your purchase power today knowing your income will rise in the future, then this loan may be right for you. Adjustable rate loans are attractive for buyers who expect to be in the home for a shorter period of time.
A FHA loan is a type of home loan that is insured by the Federal Housing Association of the U.S. Department of Housing and Urban Development. FHA loans have lower down payment requirements (typically a minimum of 3.5% of the purchase price) than many other loan types. Qualifying gifts can be used to cover the down payment, as well as closing costs and prepaid expenses. There are no income restrictions on a FHA loan and even those borrowers with lower credit scores may be considered. As is typical with most loans that do not require a minimum 20% down payment, mortgage insurance is required a FHA loan. Home types can include site-built, as well as modular and manufactured homes. Maximum loan amounts vary by state and county.
A VA loan is a guaranteed mortgage loan supported by the U.S. Department of Veterans Affairs that allows veterans to obtain home loans without a down payment. To take advantage of this program, borrowers need to be among those listed as veterans and service personnel in the U.S. military. Only primary residences qualify for this loan type with homebuyers certifying their intent to occupy the home within 60 days of closing. One of the biggest benefits of this program is that it eliminates the need for private mortgage insurance. Funding fees can be financed into a VA loan and the VA limits the amount that a veteran can be charged for closing costs.
A USDA loan (also called a Rural Development Loan) is a government insured home loan that allows you to purchase a home with NO money down. USDA home loans offer 100%, fixed rate financing to qualified buyers and provide some of the lowest rates of any loan type. Because USDA loans are specifically created for lower to middle income households, there are specific income restrictions in place. This loan category only applies to certain USDA approved areas and is not limited to first-time buyers.
For responsive, professional and timely assistance with your mortgage lending requirements, contact Gregg Anderson at Imortgage at 541-944-2723.
MORTGAGE CALCULATOR: http://gregganderson.mortgagemapp.com/