Types of Loans

FHA

FHA Loans are backed by the Federal Housing Administration, and offer a downpayment as low as 3.5%. These loans are best for those with a high Debt-to-income (DTI) ratio. The minimum credit score to quality is 580, sometimes lower. You also must reside in that home for at least 12 months after purchase. 

Conventional

Conventional loans are the most popular type of loan. These loans have less stipulations, are more dependent on your credit score and credit history, and offer a downpayment as low as 3%. 

USDA

USDA loans are for homes in rural locations, and offer as low as 0% down. These loans are purposed for those who are not wealthy, and have trouble qualifying for a traditional loan.

VA

VA loans are only available for Veterans or other military service members and their spouses. VA loans have no minimum credit score, and have a minimum downpayment of 0% for those who make the property their primary residence.

RATES AND TERMS 

Right now, a rate under 4% is good.

Term Lengths

30 Year

30 Year terms are the most common, as they offer a lower monthly payment. If you have other financial goals, a lower monthly payment might be the best for you.

15 Year

15 Year terms offer a larger monthly payment in exchange for less interest paid over time. Your home will build equity much faster with a 15 year term! 

Adjustable Rate

Adjustable Rate Mortgages (ARMs) offer a short period (usually 5 years) of a fixed interest rate. After that period, the interest rate may fluctuate with current rates. Your rates could go up or down, slightly changing your monthly payment each month. 

PMI

Private mortgage insurance is a form of “risk-protection” for the investor who lends your money. Not all homebuyers are required to pay mortgage insurance, however. The requirement is determined on the home’s loan-to-value (LTV) ratio, as well as the down payment amount. 

Required Down payment

The amount required for your downpayment is determined both by your personal goals, as well as the loan program you choose. Some programs require 0% down, while other programs don’t require PMI with down payments over 20% (saving you money each month). The higher the down payment, the lower your monthly payment.  

TOTAL MONTHLY PAYMENT 

How much will it be?

Your monthly payment is based on the value of your loan; the amount you are able to borrow is based on several factors: 

Income

Your income is the largest factor when deciding how much you’ll be approved for. The more you make, the more home you can afford.

Debts

Your current debts are weighted against your existing assets and income to determine how much you can spend. This is typically calculated with your DTI (debt-to-ratio) income, which is all of your monthly liabilities (credit card debt, car payment, etc.) combined with the proposed home loan’s monthly payment divided by your gross monthly income. For example, a household with $4,000 gross monthly income and $2,000 in liabilities (between their new mortgage and existing car payments), will have a DTI radio of 50%. 

Most loan programs require well under a 50% DTI ratio, with most between 30-40%.

Credit Score

Your credit score gives us a quick look at your borrowing history. It is not a final determining factor!  Even those who are building credit may still be eligible! 

What’s in my monthly payment?

 The Principle & Interest

The majority of your monthly payment will go toward the loan itself.

Property Taxes

Property taxes are included in your monthly mortgage payment! For the lifetime of the loan, your mortgage servicer (who you pay your monthly payments to), will take handle your property taxes for you. No surprise bills during tax season! 

PMI

Private mortgage insurance, as mentioned before, is a form of protection for the lender. Not every loan has PMI!

HOA Fees

Depending on the location of the home, it may be subject to additional fees from a Home Owners Association. Many condos, for example, must pay HOA fees for grounds or building maintenance. 

Before you get started

First, check your credit and stop other activity. Don’t buy a new car, or open new credit cards. 

Here are some tools to get you started: 

The first contact

What do you need before you start?

Any documents to verify income

• Two years of W2’s
• Paystubs for current year
• For additional income (self employed, rental, bonuses, etc.):
  • Full tax returns
  • Profit & Loss Statements
  • Proof of funds
• Existing assets & debts documents??
• Employment Information
  • Letters explaining gaps in employment over the last two years. 
  • Names and addresses of all employers for the last two years
• Work visa or green card (copy front & back)

Down Payment

Typically, you’ll need at least 3% down, plus closing costs.

If your downpayment is at least 20%, you won’t have to pay for Private Mortgage Insurance (PMI)

The Loan Officer

You and your loan officer will decide the best home-buying options for you. This will include:

• Program (FHA, conventional, etc.)
• Rate (or estimated rate)
• Loan Term
• The application gives us all the information we need to determine your needs, wants, and eligibilities for your new home! 

The Application

Our application is a ~15 minute, straightforward, online application. If you’re already working with a loan officer, remember to use their application! 

Your loan officer may also collect other support documents, like income statements, credit report, employment verification, and sales contracts. 

Assuming everything checks out, your Loan Office will give you a letter of pre-approval to start shopping (if you haven’t already started). This will act as a “proof of funds” to submit as an offer to a prospective property. 

The Underwrite

From here on out, you just have to watch your email and phone diligently. We’ve got it from here!

An Underwriter will review all of your submitted documents, considering credit, income, assets, and other variables. They will compare them with the requested property or amount, to verify your qualification for the loan. 

The Wrap-up

Once the Underwriter clears the paperwork, a loan processor reviews all of the materials for closing, sending them to a title company or closing attorney for final processing.

The Close

The title company or closing attorney prepares the legal documents to make the loan official. Once you sign the papers and the transaction is finalized, the home is yours!