Home loans are what any home owner or soon-to-be home owner considers a necessary evil. Have no fear of these loans because, with a little information and an evaluation of your circumstances, you can find the one that fits you best!
The Problem: Attaining a housing loan is like a puzzle with a million different pieces. Different pieces of this puzzle cause some people more issues than others. Maybe you have an outstanding credit score, but you don’t have a 20% down payment. Or, you may have the down payment, but you’ve switched jobs multiple times throughout the last year. Whatever the issue may be, understanding housing loans and the options that may be afforded to you will give you an “ace in the hole” in the housing market.
Understanding what a home loan is
A housing loan is the lending of currency from the lender to the borrower, with the borrower expected to pay back the principal plus interest. A home loan is simply a more specialized loan to fit both the needs and demands of the lender and the borrower.
Important information when getting approved for a housing loan:
- CREDIT SCORE: Ranging from 300 to 850, credit scores play an important role in getting approved for a modern-day loan. Check out Credit Karma to get your credit score for free without hurting your credit score.
- STEADY EMPLOYMENT HISTORY: It is typical for lenders to check up to the last two years of your employment history. These lenders will be checking for frequent changes in employment and a lack of work history. It is not likely to kill the deal that you have had a short spurt of unemployment during this two-year period, but many months of being unemployed are likely to raise doubts in the mind of your lender.
- DOWN PAYMENT: The down payment is a crucial factor when it comes to being approved for a loan. Although it depends on the loan, having a decent down payment for any loan could highlight you as an outstanding candidate among lenders.
- DEBT TO INCOME RATIO, or DTI, is a measure used by lenders to understand your financial scenario in regards to what you owe compared to what you earn on a monthly basis. The equation for this ratio is simply (monthly debt/monthly income). A typical lender is looking for a DTI of <43%.
- CURRENT ASSETS: Lenders will inquire about both what assets you have and their value at the time you are applying for your loan. Not everything you would consider an “asset” will fall under the umbrella of what the bank considers an asset.
- CONDITION OF THE HOME: Lenders can be very particular about the condition of the home in which they lend. In order to insure that the home is a good investment for the lender, they tend to favor a “move-in-ready home” over a “fixer-upper”. Despite this fact, there are other ways to finance these homes (not to mention the FHA 203K, which you will read about in a moment), such as through a “hard money lender” or different private lenders.
- LOCATION OF THE HOME: The location of a home can play a huge role in the current and future value of the home. Lenders are likely to be more hesitant to lend on properties that are in neighborhoods that have historically depreciated in value over the last few years.
- YOUR INCOME: Understanding your income will put into perspective how much house you can afford. Many lenders prefer that you do not pursue any mortgage that would require at least 28% of your monthly income. If this doesn’t afford you the amount of house you were looking to get, saving for a larger down payment and waiting for better interest rates could both help you get more house with a mortgage you can afford.
#5 FHA 203K LOAN (FLEXIBLE AND STANDARD)
Flexible Loan Conditions
- Up to $35,000 of the borrower’s mortgage may be used to repair or improve the home of purchase.
- 15-30 year fixed rate loan
- Repairs or improvements to the home must start within 30 days of the home’s closing and be completed in under 6 months.
- Repairs and improvements to the home must be performed by an approved contractor and not by the borrowers themselves.
- Minimum down payment of 3.5% down on the mortgage( with a credit score of 580+). (Applicants with 579 and lower are required to put forth a 10% down payment.)
- Get a loan of up to 110% of your property’s value from an after-improvement appraisal.
STANDARD LOAN CONDITIONS (DIFFERENCE)
- Requires a minimum of $5,000 for the repair of the home
- The loan amount may exceed $35,000.
NOTE: Flexible loans are typically acquired in order to make more minor home repairs, as standard loans are better suited for homes in need of large repairs.
COMPREHENDING WHY THIS MIGHT BE THE LOAN FOR YOU-
FHA 203K loans are great for new home owners who know that they have found just the right spot but that the property is just not what it could be. Or maybe the home is great, but the repairs are just slightly over what cash you happen to have on hand. This loan is a great tool to utilize either way, as it can appreciate the value of your home a great deal and make it easier for you to get a great deal on the kind of property others are more likely to simply pass by.
To learn more about this loan, visit Government Loan Info.
#4 USDA Loan (Direct and Guaranteed)
DIRECT LOAN CONDITIONS:
- Loans must be handled completely through the USDA.
- May be a 33-38-year loan
- Applicants must make 50–80% of the median income of their area.
- Minimum credit score of 640
- The home must be at least 2,000 square feet.
- The home must qualify as being in a “rural” area.
- The household income limit is as follows:
- 1–4 residents should make $103,500 or less.
- 5-8 residents should make $136,800 or less.
Guaranteed Loan Conditions (Difference)
- A loan is not required to be handled through the USDA but through approved lenders.
- Applicants must make 115% of the median income in their area.
- The loan may be a regular 30-year loan.
- There is no limit on the square footage of the home.
COMPREHENDING WHY THIS MIGHT BE THE LOAN FOR YOU-
This loan is excellent for people who need to get into a home but do not have the typical downpayment needed. The loan is very forgiving to borrowers who may not be able to make significant monthly mortgage payments. Borrowers are limited by the fact that the property must qualify as “rural”.
To learn more about this loan, visit Government Housing Info.
#3 CONVENTIONAL LOAN
Conditions OF THE Conventional Loan
- Typically, a 20–25% down payment is required for this loan.
- 30-year mortgage
- Fixed or adjustable interest rates
- 620 credit score minimum
- Tend to have lower interest rates due to a larger down payment.
COMPREHENDING WHY THIS MIGHT BE THE LOAN FOR YOU-
The Conventional loan is perfect for the most typical home buyers. It allows for great financing, with both parties benefiting. (The buyer gets better financing, and the borrower has a better loan to sell.) This loan is also great for real estate investors, as it is one of (if not the only) loans that they can use without having to live in the residence for any period of time.
#2 FHA loan
Conditions OF THE FHA Loan
- 3.5% down payment( with a minimum credit score of 580)
- 30 year mortgage rate
- debt-to-mortgage rate of <43%
- Premium mortgage insurance is required (with the 3.5% down payment).
- The borrower must use the property as their primary residence for at least a year.
COMPREHENDING WHY THIS MIGHT BE THE LOAN FOR YOU-
If you lack the 20% down payment of a conventional loan, this loan may be just what you need. This loan is fantastic for home buyers who have found move-in-ready houses but just don’t have the cash on hand to take out a more traditional loan.
To learn more about this loan, visit Government Housing Info.
#1 VA LOAN
Conditions OF THE Loan
- 0% required down payment
- Guaranteed lower interest rates
- Mandatory appraisal fee
- Mandatory funding fee (which may be included as part of the mortgage payment)
- Must be a veteran, active duty service member, or select spouses of fallen soldiers.
- Can be used multiple times.
COMPREHENDING WHY THIS MIGHT BE THE LOAN FOR YOU-
This loan is, as stated above, only available to veterans, active-duty service members, and select spouses of fallen soldiers. The loan offers unique benefits that give it a leg up on other loans. This loan is known for resulting in manageable monthly payments and the easiest down payment imaginable.
To learn more about this loan, visit VA Loan Info.
