Different Loan Types Explained

Purchasing your first home can be difficult to navigate, especially if you are new to the real estate world. All of the brand new lingo getting thrown at you can be super overwhelming, so if you’re feeling confused, you’re not alone! However, the good news is that even though this process may seem complicated, it’s truly very simple! Unfortunately, if you don’t have cash outright to buy an entire house (most people don’t, especially for their first one), you have to borrow the funds from a bank with interest. Your real estate agent may recommend a lender, or you can pick your own if you like to do your own research. Either way, you should expect the same process.

What To Expect When Talking to a Loan Officer

The first question your personal or suggested loan officer may ask: “What type of loan do you want?”

Your real estate agent, loan officer, or lender may suggest one that they recommend. Or, they may ask more questions about your situation to determine the right choice. They might throw out words like conventional, 10-31 Exchange, investment, FHA, fixed rate, adjustable rate, and more. If you’re feeling confused, let’s help break it down to terms that actually make sense.

Types Of Loans

  • Conventional: This popular type of home loan isn’t insured or guaranteed by any government entity. This separates it from the following types of loans.
  • FHA: The Federal Housing Administration (FHA) mortgage insurance program is managed by the Department of Housing and Urban Development (HUD), a federal government entity. Fortunately, these loans are available to all types of borrowers, contrary to popular belief. Check out our guide on FHA loans for more details on this type of loan.
  • VA: The U.S. Department of Veterans Affairs (VA) offers a loan program to military service members and their families. Similar to the FHA program, these types of mortgages are guaranteed by the federal government. This means the VA will reimburse the lender for any losses that may result from borrower default. The primary advantage of this program (and it’s a big one) is that borrowers can receive 100% financing for the purchase of a home. That means no down payment whatsoever. Thank you for your service!
  • USDA: The United States Department of Agriculture (USDA) offers a loan program for rural borrowers who meet certain income requirements. The program is managed by the Rural Housing Service (RHS), which is part of the Department of Agriculture. This type of mortgage loan is offered to “rural residents who have a steady, low or modest income, and yet are unable to obtain adequate housing through conventional financing.” However, the requirements vary by county. We recommend meeting with your local lender for more information on a USDA Loan.

Sub Types

  • Fixed-rate: Fixed-Rate loans have the same interest rate for the entire repayment term. This means you can expect your mortgage rate to stay the same forever. Well, at least until your home is paid off completely. It’ll never change, making budgeting easier. Simple!
  • Adjustable-rate: These types of loans will adjust every once in a while, usually every year after an initial fixed time period. This is also known as a hybrid loan, since there is a fixed rate before switching to an adjustable rate. For example, a 5/1 ARM loan has a fixed rate for the first five years. After this, it will adjust every one year, or annually.

Conclusion

A great real estate agent and loan officer will make the process of buying a house simple. They can explain the different types of loans and help you find the right one for you. However, our experts here at CDA Real Estate Investment recommend researching loan types on your own as well. This helps guarantee that you choose the perfect loan type for you.

Read More

Home Mortgage Tips from the Experts

Planning to get a mortgage starts with a great deal of research. You need to understand your local laws, how to find a lender and more. Luckily, you are in the right place! Our experts here at CDA Real Estate Investment & Property Management are happy to provide you with great advice which you can’t get a new mortgage without.

Do Your Homework

Know your credit score before beginning to shop for a home mortgage. If your credit score is low, it can negatively affect the interest rate offered. By understanding your credit score, you can help ensure that you get a fair interest rate. Most lenders require a credit score of at least 680 for approval.

Consider All Aspects

Remember that the interest rate isn’t the most important part of a mortgage. You also have to think about closing costs, points and other incidentals. There are different kinds of loans as well. That is why you have to find out as much as you can about what you’re eligible for.

Consider unexpected expenses when you decide on the monthly mortgage payment that you can afford. It is not always a good idea to borrow the maximum that the lender will allow if your payment will stretch your budget to the limit and unexpected bills would leave you unable to make your payment.

Be Cautious

Watch out for banks offering a “no cost” mortgage loan. There is really no such thing as “no cost”. The closing costs with “no cost” mortgages is rolled into the mortgage loan instead of being due upfront. This means that you will be paying interest on the closing costs.

Tell the Truth

Avoid fudging the numbers on your loan application. It is not unusual for people to consider exaggerating their salary and other sources of income to qualify for a larger home loan. Unfortunately, this is considered fraud. You can actually be criminally prosecuted, even though it doesn’t seem like a big deal.

Don’t Give Up

What do you do if the appraisal does not reflect the sales price? There are limited options; however, don’t give up hope. You can dispute the appraisal and ask for a second opinion; however, you will need to pay for the appraisal out of your pocket at the time of the appraisal.

 

Since you have read all of the advice in this article, you should feel confident in taking the next steps towards securing your mortgage. All you have to do is use each tip to its fullest extent. Soon enough, you’ll have the mortgage you need and your finances will be back on track.

Read More

What Is an FHA Loan?

The advent of the FHA loan has converted visions of home ownership into reality for those who never thought it was possible. While the FHA loan isn’t a one-size-fits-all solution for everybody, there are some things about it that make it great and unique. FHA loans allow a buyer to make a down payment of as low as 3.5% with less-than-great-credit. With the FHA 203k program, buyers can also receive extra funding for repairs and renovations. Lastly, the down payment for an FHA loan can be a gift. All of these factors make the FHA loan a truly unique opportunity for first-time homebuyers to make their dreams a reality.

History

FHA loans can be issued by approved private lenders like banks and credit unions. The FHA (Federal Housing Administration) backs the loan, giving lenders the confidence to approve some otherwise unfit loan applications. The Federal Housing Administration is a government agency founded in 1934 in the middle of the Great Depression, when housing markets were at an all-time low. Since its creation, the FHA has backed millions of loans, making it the largest mortgage insurer in the world. Contrary to popular belief, FHA loans aren’t just for first-time homebuyers. However, you can only have one outstanding FHA loan at a time.

Do I qualify?

FHA loans are a great fit for some individuals. With very little money down, the option of paying the down payment with a gift, help with improvements, and no prepayment penalty, this loan seems like a little too good to be true. However, FHA loans are even easier to qualify for than conventional loans. With government backing, lenders are more willing to approve potential homeowners of all income levels.

FHA loans do not have an income limit. However, you do need a reasonable debt-to-income ratio to qualify. Usually, you should aim for a rate lower than 31/43. For example, if you make $3,500 a month, your house payment needs to be below $1,225. Online tools can help you calculate your average house payment so you can see if you’d qualify.

First Steps

First, consider some of the downsides to using an FHA loan. You will have to pay mortgage insurance at 1.75%, along with a monthly fee that depends on your personal loan risk. You can expect this to be an additional 1% a month. Also prepare to pay a higher interest rate than you would with a conventional loan, or the same. In addition, consider that FHA loans have limits, and if you’re looking to buy a more expensive property, you may not be able to swing it with an FHA loan. If you are still on board, it’s time to jump in!

The best way to start your journey into the world of FHA loans is to talk with a FHA-approved loan officer. These professionals will be able to lead you in the right direction and discuss different options with you if you don’t qualify for an FHA loan for any reason. They will give you a list of everything you need to get started.

It’s worth a shot

Talk to an FHA-approved lender to see if you might qualify for an FHA loan. You may be surprised! Experts encourage that buyers shop around and compare offers from several different sources, FHA and conventional. After approval (or before), talk to our experts here at CDA Real Estate Investment and Property Management to discuss exactly what type of home you want. We have access to the latest and greatest FHA-approved properties. We can help assist you every step of the way. Your dreams of owning a home may be much closer than you think!

Read More

Common mortgage questions answered!

mortgage questionsThere are a lot of people out there seeking home mortgages, but very few are going to find a fair, secure loan. Most will end up paying far too much, and others won’t be able to afford the terms. These are obviously traps you want to avoid like the plague, and thus it’s in your best interest to learn more about the lending process before proceeding.

Get a pre-approval letter for your mortgage loan. A pre-approved mortgage loan normally makes the entire process move along more smoothly. It also helps because you know how much you can afford to spend. Your pre-approval letter will also include the interest rate you will be paying so you will have a good idea what your monthly payment will be before you make an offer.

As a first-time homebuyer, you may qualify for government programs. These government programs often work with individuals with lower credit scores and can often assist in finding low interest mortgages.

Really think about the amount of house that you can really afford. Banks will give you pre-approved home mortgages if you’d like, but there may be other considerations that the bank isn’t thinking of. Do you have future education needs? Are there upcoming travel expenses? Consider these when looking at your total mortgage.

mortgage questions

Pay off your mortgage sooner by scheduling bi-weekly payments instead of monthly payments. You will end up making several extra payments per year and decrease the amount you pay in interest over the life of the loan. This bi-weekly payment can be automatically deducted from your bank account to make it easy and convenient.

Look closely at lenders. There are many companies willing to lend you money to finance your home. They are not all equal. Look into the reputation of the lender and try to talk to people who have their loans through them. Reputations are hard to hide, and you will want to know how your potential lender handles business.

Mortgage rates change frequently, so familiarize yourself with the current rates. You will also want to know what the mortgage rates have been in the recent past. If mortgage rates are rising, you may want to get a loan now rather than later. If the rates are falling, you may decide to wait another month or so before getting your loan.

The more you know about home mortgages, the better off you’ll be when it’s time to sign the papers. By using tips like the ones provided to you above, you can avoid a lot of the traps and scams that snag so many others. Just take your time, learn about the subject, and never sign anything unless you understand it.

Read More

Mortgage tips you need to know!

mortgage tipsGetting a home mortgage can sometimes be very difficult. If you are looking for your dream home and in search of a mortgage, then you will want good information about what to look for. Continue to the article below for many tips on how to go about choosing the right home mortgage.

When you get a quote for a home mortgage, make sure that the paperwork does not mention anything about PMI insurance. Sometimes a mortgage requires that you get PMI insurance in order to get a lower rate. However, the cost of the insurance can offset the break you get in the rate. So look over this carefully.

Before getting a mortgage, study your credit history. Good credit is what can help you get a mortgage. Obtain copies of your credit history and scores from the three major credit-reporting bureaus. Study your reports carefully to ensure that no issues or errors must be resolved before you apply. Many lenders need a minimum score of 680, which complies with Freddie Mac and Fannie Mae’s guidelines. Most lenders want to avoid scores that are lower than 620.

mortgage tipsTry shopping around for a home mortgage. When you do shop around, you need to do more than just compare interest rates. While they’re important, you need to consider closing costs, points and the different types of loans. Try getting estimates from a few banks and mortgage brokers before deciding the best combination for your situation.

Before you refinance your mortgage, make sure you’ve got a good reason to do so. Lenders are scrutinizing applications more closely than ever, and if they don’t like the reasons you’re looking for more money, they may decline your request. Be sure you can accommodate the terms of the new mortgage, and be sure you look responsible with the motivations for the loan.

Get pre-approved for a home mortgage before shopping for a new house. Nothing is worse than finding the perfect house, only to find out that you can’t get approved for a mortgage. By getting pre-approved, you know exactly how much you can afford. Additionally, your offer will be more attractive to a seller.

Finding the right home mortgage for your situation can sometimes be a confusing process. Many people are not familiar with how to begin the process of seeking a home mortgage. Thankfully the article you just read was packed full of quality tips that should have left you feeling like an expert on the subject of home mortgage.

Read More