In a previous Post, we talked about what is required to qualify for a loan to buy your first house in Warner Robins Georgia. Now we can talk a little about different kinds on loans, what each requires and how much down payment they require for each.
COUNT YOUR BLESSINGS. These days, many banks will loan 100% of the cost of a house under certain conditions. When FHA was established in 1937, this started the 30-year loan program that enabled many people to get home loans that otherwise could not( even then, banks would only lend 20% of the purchase).
Lets look at each of the main loan types and see the difference.
1.Buy your house with a conventional Loan
Buying your Warner Robins house with a conventional loan is the program to qualify for. This loan requires the most down payment at 20%. This drawback is providing a down payment for this loan. Example; $200,000 house at 80% equals $160,000 loan. You must provide $40,000.
The good part about this loan is banks do not require the borrower to pay PMI (Private mortgage insurance) on loans less than 80% of the value of the house. Also, most banks do not require the borrower to keep an escrow account for taxes and homeowners insurance.
Conventional loans can also be used on a personal house or a rental property. If a landlord can not qualify for a commercial loan, this is the loan they most often use.
2. USDA loan program
USDA loans are designed for owner occupied homes in qualified rural areas and small townships. Depending on the borrowers credit score and income, they may qualify for 100% financing. The intended recipients of USDA loans are low and moderate income families, so, the qualifying income limits are;
- 1-4 member family, $103,500
- 5-9 member family, $136,600
USDA loans do not have a minimum credit requirement to qualify for this loan program, however, there are more strict guidelines if the borrower’s credit falls below a 640. This can mean the borrower needs to put down a higher down payment, they may require a higher escrow balance be maintained or could be charged a higher interest rate (This is why a good credit score is so important).
3. Is an FHA loan right for me?
An FHA loan is one of the most common loans that new homeowners qualify for. FHA does have a minimum score requirement of 580 to qualify for a 3.5% down payment that everyone wants. A credit score below may still qualify for a loan, but will will require a 10% down payment. As with many loan programs, FHA does require a debt-to-income ratio of less than 43% (less than 43% of the total household income is paid out in qualifying monthly bills. I.E. car loans, credit card payments, student loans, etc.).
Also, since this loan program is lending more than 80% of the value of the subject house, they do require that an escrow account be maintained and the borrower pays PMI as part of the monthly payment. Don’t worry, the lender writing the loan will calculate all of this.
Side note: Make sure to ask lots of questions. Understand the loan you are getting. If you are not comfortable, don’t sign.
4. Support our military with a VA Loan
Did you know a VA backed loan can pay 100% of the purchase of a house? They require a military member;
- Be active with more than 90 days of service
- Be separated or retired with more than 24 total service
- Be active guard or reserve with more than 90 days active
No down payment or PMI is required for a VA loan. A VA loan can also be used on more than one house with a qualifying life change. VA loans are also assumable to other qualifying military members, meaning the buyer can take over the payments of the sellers loan.
Another good reason to serve your country.
5. Ever hear of a 203K Loan?
A 203K loan is an FHA loan that offers funds for purchase a repairs of a house that needs work. 203K loan has the same loan qualifications as a regular FHA loan. There are some extra requirements, but also has some interesting benefits.
Extra requirements are;
- Must complete an application
- Have a written plan for renovations
- A qualified contractor to supervise
- Major repairs may require a 203K consultant
The benefits are;
- Loan will fund the lessor of:
- Purchase and repairs or 110% of ARV (After Repaired Value)