Month: December 2017
Many homebuyers don’t realize there are several government home loans designed specifically for first-time buyers until it’s too late! Below we’ve listed a few of the most popular programs and shared some details that will help you land an excellent mortgage package.
FHA Loan
An FHA loan is distributed and insured by the Federal Housing Administration. The FHA is an agency within the U.S. Department of Housing and Urban Development. With an FHA loan, the lender won’t experience a loss if you default on the mortgage. These loans come with competitive interest rates, lower down payments and closing cost than conventional loans. If your credit score is 580 or higher, you may be eligible for a down payment as low as 3.5 percent of the purchase price. However, if your credit score is lower than 580 you may still qualify for an FHA mortgage, but the down payment will be at least ten percent of the purchase price.
USDA Loan
The United States Department of Agriculture has a homebuyer assistance program focusing on homes in selected rural areas (no farm required). The USDA guarantees the loan, and in some cases, no down payment is required, and the payments are fixed. Applicants with a credit score of 640 above undergo a simple process. With a score below 640 you can still qualify for a USDA loan. However, the lender will ask for extra documentation about your payment history. The loan program includes some income limitations, which varies by region.
VA Loan
Active-duty military members, veterans, and surviving spouses are eligible to receive a loan backed by the United States Department of Veterans Affairs. The VA guarantees a portion of the loan, leaving room for lenders to offer some special features. VA loans come along with competitive interest rates and don’t require a down payment. Loan recipients aren’t required to pay for private mortgage insurance (PMI), and there’s no minimum credit score needed for eligibility. If meeting payments on the mortgage become difficult, the VA will help negotiate a deal with the lender on your behalf.
Good Neighbor Next Door
The Good Neighbor Next Door Program is sponsored by HUD and assists law enforcement, firefighters, teachers, and emergency medical technicians with housing. The program offers a 50 percent discount on a home’s listed price in locations deemed “revitalization areas”. To be eligible, you must commit to living in the home for at least 36 months.
Fannie Mae or Freddie Mac
Fannie Mae and Freddie Mac collaborate with local lenders to offer mortgage options benefitting low to moderate-income families. Lenders supported by Fannie Mae and Freddie Mac can offer competitive interest rates and accept down payments as low as three percent of the purchase price.
Ready for the Next Step?
Want more information about government home loans? A home loan expert at Assurance Financial is ready to help you choose the right loan for you today. Our team of loan officers is qualified to help you find a program that fits your needs. Click here for more details and to get started today.
Obtaining a home loan isn’t a one-step process. Below we’ve laid out the most essential aspects of the home loan process. Our guide will help you be prepared for every step of the way!
Save Up for a Down Payment
The home loan process always starts with saving. Depending on the type of loan you choose, you may be required to make a down payment ranging from 2.25% to 20% of the purchase price of the home. Start by creating some room in your monthly budget for the down payment. The most convenient method is establishing an automatic deposit to a savings account, specifically for your home loan. If a large down payment isn’t realistic for you, consider an FHA loan. This loan program is designed for home buyers who can only make small down payments.
Track Your Credit Score
Having a good credit score makes the home buying process a breeze! Before you start the buying process, get a copy of your credit report. Looking at your report will help you understand how your credit profile appears to potential lenders. Once you’ve examined your credit profile, you can begin taking steps to improve your credit score if need be.
Get Organized & Prepared
When you submit your mortgage application, you’ll need to hand over a few important financial documents to your lender. Take some time to get organized and find all the records you need to provide your lender. Having these documents at the ready will accelerate the processing of your loan application. In most cases, you’ll need to provide your last two pay stubs, your previous two tax returns, your most recent W-2 form, and current bank statement.
Discover Which Loan Option is Best For You
Despite their sound advice, the loan program that worked best for your parents may not always be ideal for you. Take some time to research which loan program will fit with your current financial situation. Everyone has a set of unique financial needs. With a little digging, you’ll be able to find the loan that best suits your needs.
Contact a Lender
Once you’ve done all your research and assembled the necessary documents, it’s time to visit your lender. They’ll be able to assist you with all the heavy lifting involved in the mortgage process.
At Assurance Financial, we guide each of our clients through the home loan process, ensuring total transparency and support along the way. Our team of mortgage experts specialize in residential home loans and are here to help you. For more about our loan process, click here.
The beginning of the mortgage loan process is filled with confusion. Federal Housing Administration (FHA) and conventional loans are among the most common mortgage programs for new homebuyers! Both loans have their unique advantages, and understanding your options will help you make the best decision.
Down Payment
In the past, FHA loans required the lowest down-payment, typically sitting around about 3.5% down. Now, conventional loans offer a 3% down payment option for qualified buyers. In some cases, lenders offer even lower rates.
Property Standards
FHA loans require at least one of the owners be a primary resident within sixty days of closing. Investment properties or homes being sold within 90 days of the prior sale aren’t eligible for FHA loans. With a conventional home, you’re allowed to purchase a vacation home, an investment property, or a primary residence. FHA home appraisals are incredibly detailed. The property is assessed for value, safety, soundness of construction and local restriction standards.
Loan Limits
Jumbo loans, which are loans that are bigger than the loan limits set by Fannie and Freddie, fall outside of the limits of FHA and conventional loans. FHA loans must follow county-level limits, which are based on a percentage of the county’s median home price. Fannie Mae and Freddie Mac guarantee loan limits for single-family homes are $424,100 in most of the country. Depending on the county and area of the country, loan ceilings can reach much higher.
Credit Score Requirements
FHA loans are much easier to qualify for thanks to a low bar for credit scores. In most cases, a credit score of 500 or above is all that is needed for approval. Conventional loans typically require a credit score of 620 or above. For most home buyers, the lower your credit score, the higher your mortgage interest rate.
Debt-to-income ratios
To qualify for an FHA loan, the potential homeowner must have a debt-to-income ratio of 50% or less. A recent study revealed the average debt ratio for FHA loans is about 42%. Conventional loans typically require a debt to income ratio no higher than 45%. The average debt ratio for conventional loan borrowers is 34%.
Do you have more questions about how to choose the right mortgage program for your needs? Contact Assurance Financial today! Our team of home loan experts are ready and prepared to answer any of your questions. Click here for more information!
We pride ourselves on the expertise and approachability of our loan officers. We make sure everyone knows everything about home loans. The purpose of this is to ensure that we can assist you to find the best option for your situation and needs. When you work with us, we join your team, working with you to make sure everything moves as smoothly as possible.
However, no matter who you work with, there are basic principles every agent should have to assist you in the best way. These are the pillars our Loan Officers are trained under, and it’s the standard every home loan officer should adhere to when working with a client:
Know The Builders In Your Market
Multiple options for financing, terms, and processes are only available if the agent knows various builders within the area. Without this, they can’t assure you’re going to get the best option. Even if they don’t have an extensive history in the market, they should know the builders.
Understand The Builder’s Products & Specialties
Knowing what they can do and offer is a no-brainer for an experienced agent. If your agent knows the builders in the area, but not their expertise and offering, it’s a red flag.
Be Up To Date On What Lots Are Available & What To Look For
A good way to check and make sure this is happening is see if your agent accompanies you when the builder is walking you through the lot. Take note of the agent’s engagement, since they should have a basic understanding of the factors that are important to you. From excellent communication, experience with the builder and keeping your best interest at the forefront, your agent should be your best friend throughout this process.
New Construction Knowledge
Starting and financing a new construction build can be a tedious and overwhelming process. If the agent meets with you and doesn’t outline the processes involved, with the builders, lenders, sales reps, etc., then they didn’t do their homework.
Home loans are complicated. Financing new construction builds are also complicated. The point of working with an agent is for them to do all the heavy lifting, taking away the stress and getting you the best option for your situation and needs.
This principle is what we were founded on, and it’s what drives every one of our agents to deliver the most comprehensive, knowledgeable, and valuable information to you. Building your dream home shouldn’t be a nightmare. We make sure it isn’t. Contact our Loan Officers today!
When it comes to financing a construction project, there are several options available to you. Depending on the lender, your situation, and whether you own the land, can all change the options available to you.
Let’s start with the basics.
Your Two Options: Builder or Buyer Financed.
Builder financed is typically done in subdivisions so the builder or developer can maintain control of the overall project. Buyer financed construction is done on “scattered lots” so the builder can avoid ending up with “spec” homes that are difficult to sell. This option is almost universally required on custom builds.
In both cases, the borrower will be paying for the cost of financing the construction, either transparently in the price of the home or visibly in the cost of the permanent construction loan. Also, in both cases, a final Certificate of Occupancy is required to close, as temporaries are not allowed.
The borrower is the owner of the record throughout the entire process, making monthly interest-only payments during the construction phase based on the amount drawn. The qualifications for the loan are based on the permanent loan terms. For example, most lenders will only finance owner-occupied and secondary residences.
Investment properties are considered commercial transactions and, when it comes to closing on a loan, there are two types:
Single-Closing & Two-Closing Transactions.
Single-Closing Transactions have stricter underwriting guidelines, and the Loan-To-Value (LTV) is calculated using the lesser of appraised value and acquisition cost. Before moving forward, an LTV describes the size of a loan compared to the value of the property securing the loan.
A Construction Loan is modified or adjusted to the permanent terms, thus the “Single-Close” labeling. Because the loan documents specify the terms of the permanent financing, the construction loan will automatically convert to a permanent long-term mortgage upon completion of the construction.
Eligible loan purposes for Single-Closing transactions:
- Purchase Transaction: Borrower does not own the lot before loan application
- LTV calculated using the lesser of the “subject to” appraised value or acquisition cost.
- Limited Cash-Out Refinance Transaction: Borrower owns the lot before loan application
- LTV calculated using the “subject to” appraised value.
Two-Closing Transactions are the most common and flexible structure, having more flexible underwriting guidelines. The LTV is calculated using appraised value, and equity is considered towards down-payment.
The main difference between the two transactions are the types of documents signed at conversion. Two-closing construction-to-permanent mortgage transactions utilize two separate loan closings with two separate sets of legal documents. Even though there are two notes, it is still considered one transaction.
Eligible loan purposes for Two-Closing Transactions:
- Limited Cash-Out Refinance Transaction
- Cash-Out Refinance Transaction: Land was owned at least six months before closing construction loan.
- LTV is calculated based on the “subject to” value of the project.
This process can vary depending on what you’re looking for and how you’d like to finance the construction. In everything that is done, communication is key to a successful transaction! Which is great, because we’re excellent at that. Contact us today so Loan Officer can help you finance your next construction operation with the option perfect for you.
The appraisal process for financing new construction can seem complicated at first but, as with everything else in this process, the steps you take are determined by how you’d like to finance the construction.
The two options here are if the builder will finance, or if the buyer will finance.
If you’d like the builder to fund the construction, then a “subject to” appraisal will be performed at the time of the initial underwriting.
A “subject to” appraisal is where the value of the land is based off what the home will be worth in the future. It helps you evaluate the home after the improvements have been made. “Subject to” appraisals are a good way to make sure you don’t “over improve” your home.
Appraisals are good for 120 days (180 days for Veterans Affairs Loans (VA)). If the house is not completed within this time, either a “Recertification of Value” or a new appraisal will be completed by the appraiser before the purchase is finished.
When the house is complete, the appraiser will provide a “Final Inspection” report. It’s important to note that if the builder finances the construction, the Loan-To-Value (LTV) is calculated by using the lesser of the purchase price or the appraisal.
The other side of the coin is if you – or the buyer – will be financing the construction.
In this process, there are no drastic differences between this and builder financed. This appraisal process starts off with a “subject to” appraisal performed at the time of the initial underwriting. The appraisals are still good for 120 days (180 days for VA).
If the house is not completed within this period, either the appraiser will complete a “Recertification of Value” or a new appraisal (VA exception).
When the house is complete, the appraiser will provide a “Final Inspection” report. The main difference here is that the overall cost is directly correlated to the cost of building the house.
Whether you or the builder finance the home, the process is meant to be as seamless and intuitive as possible. Some people may not know the steps to take or the questions to ask, but that’s why we’re here. Contact our Loan Officer today to find out how we can help you finance your next construction build!