Knowing Your Options For Home Financing

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Once you are done looking at homes and decided on the one you want to buy, it is time to do the serious homework – finding the best type of financing for your new home. Let’s start with how much down payment will you need and what type of mortgage is available to finance your new home purchase?  Learn more about these financing options at Homes in Gainesville Florida.  A service of Gainesville Realty.

Down Payment Requirements

The minimum amount of your down payment will depend on your selected mortgage program. FHA mortgages evaluate your credit score and if you have a score of 580 or below you will need to provide 10% down payment toward the house purchase. This amount reflects the recent increase in the upfront mortgage insurance premium to 2.25%. If you are fortunate to have a credit score above 580 then you will be required to provide a 3.5% down payment towards the purchase of your home. If you are considering using a conventional mortgage, 20% is the normal down payment requirement. If you qualify, there are certain conventional loan programs that only require a down payment of 5%. In the event you obtain a lower down payment conventional loan you could be required to buy private mortgage insurance. The added insurance will cover the lender if you fail to pay the loan.

Mortgage Loan Repayment Requirements- Which Suits You?

Fixed Rate Mortgage Loans:

Advantages- Over the term of the loan you know the fixed loan payment since the interest rate is set. Fixed rate loans are best used by home buyers plaan to stay in the home for periods in excess of 5 years. The terms of these loans range from 15, 20 or 30 years. There are even 40 year loans.

Disadvantages- Interest rate is usually higher that an adjustable rate mortgage and may not be beneficial for a homeowner planning to move in less than 5 years.

Adjustable Rate Mortgage Loans:

Advantages- If a homeowner is planning to sell the home in less than 5 years or refinance the loan then adjustable rate loans can work. If interest rates decline in the near future this can be beneficial. Also, many young homeowners use adjustable rate loans to start because of lower payments. They are hoping that their financial circumstances will improve in the future and then convert the adjustable rate loan into a fixed rate loan.

Disadvantages- May not be good for a homeowner on a low or fixed income, may not be beneficial for a homeowner planning home occupancy for longer than 5 years, monthly payments can increase significantly after the initial teaser rates have expired. When the borrower is negotiating the initial loan, they should be totally aware of the adjustable interest rate that can be charged. Look for a cap on the interest rate that be levied during the term of the loan.

Mortgage Programs

Federal Housing Administration (FHA) Mortgage Program:

The intent of FHA loans is to assist first time homebuyers make purchasing a home much more affordable. This is achieved by the lower down payment provision. The amount of down payment cash for a conventional mortgage is usually out of reach for the person just starting on home ownership.

Veteran’s Affairs (VA) Mortgage Program:

When a mortgage is backed by Veteran Affairs there is little or no down payment requirement. However, VA mortgages have additional requirements.

a. VA loans are only available to military personnel or veterans or surviving spouses who have died from service related injuries.

b. Veterans are awarded a VA home loan benefits based on their military service and background. Veterans are still required to meet income and credit requirements to be eligible for their VA loan.

Conventional Mortgages

If you do not have a FHA or VA insured mortgage then you have a conventional mortgage. As discussed above it requires a larger down payment and also requires Private mortgage insurance (PMI) when the LTV ratio exceeds 80%. PMI insures the top part of the loan amount. PMI ceases when the loan is amortized down to 78% of the original appraised value.

As you can see, the number of available mortgages is varied and requires proper information and advice to select the one best for you and your family. You should be careful to select a qualified mortgage broker or loan officer when financing your new home.  For details and more information please visit Homes in Gainesville Florida.

 

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