A Primer On Mortgage Loans For First-time Buyers
If you're like most home buyers, you don't have a big pile of money sitting around somewhere waiting to be used to buy a home
. As with most major purchases, it seems that minor detail of financing just won't go away. What type of loan should you get? How much can you borrow? Will you have to pay mortgage insurance? These are some of the typical questions that go through many borrowers' minds when thinking about mortgage financing. The following is a brief list of differences that exist among the different loan programs.
FHA requires that a borrower come up with 3.5 percent of the purchase price as a down payment. Conventional loans require a minimum of 5 percent. With an FHA loan borrowers are required to pay both upfront and annual mortgage insurance regardless of the initial loan-to-value on a 30-year mortgage. Depending on the loan-to-value ratio, a borrower will have to pay a certain percentage of mortgage insurance with a conventional loan. Borrowers don't have to pay mortgage insurance when the loan-to-value is at or below 80 percent. As interest rates tend to be comparable for FHA and Conventional loans it is generally the amount of mortgage insurance that will determine which loan costs more over the life of the loan, all other things being equal.
With FHA there is more flexibility with regard to credit compared to conventional loans. For example, a borrower with no traditional credit history at all, or even a troubled credit history, may qualify for a loan under FHA guidelines. When a borrower has gone through a period of bad credit FHA underwriter will try to determined the cause. When a borrower undergoes a time of financial struggle that is the direct result of circumstances that the borrower has no control over of then the borrower may be eligible for an underwriting exception so long as the circumstances that led to the difficulty are a thing of the past. The death of a spouse or even a serious medical problem are just two examples of circumstances that would be considered beyond a person's control. Plus, no minimum credit score is required in order to be eligible for an FHA-insured loan. It should be noted, however, that a majority of FHA lenders will voluntarily impose a minimum credit score requirement. Conventional loan guidelines are much stricter with respect to credit.
While the collapse of the sub-prime mortgage market and all the upheaval that followed brought all mortgage borrowers under greater scrutiny it is nevertheless still possible to get a home loan. For most, credit damage is the result of being unable, rather than unwilling, to pay one's bills. By faithfully maintaining and growing a savings account you will be less likely to find yourself in a position where you are unable to pay your bills.
by: Micky Woodruff
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