Credit

Understandably, the better your credit, the easier it is to get a mortgage.

The interest rate on your mortgage is tied to your credit score.

Great credit, great interest rate.

Poor credit, higher interest rate.

Horrible credit.  Sorry.

What if you have no credit because you pay everything with cash?

A loan officer may be able to help you build credit using rent payments,

utility bills, insurance, cell phone bills, etc.

What will my monthly house payment be?

Just to give you a ballpark figure,

Your monthly payment will be approximately

1% of the sales price.

(i.e. $1500/month on a $150,000 home)

That payment consists of principal, interest, escrow, & mortgage insurance.

What is escrow?

Escrow is your savings account held by the mortgage company to pay your  yearly property taxes and homeowners’ insurance.

The monthly payment is basically 1/12  of your yearly taxes & insurance.   At the end of each year, your mortgage company pays your property taxes.  On the anniversary of your home purchase, your homeowners’ insurance is paid.

What is mortgage insurance?

It is a fee you pay for purchasing a home with little or no money down. 

It insures your lender against your default.

Mortgage Programs

Government Insured Loans:

                FHA, VA, USDA Rural Home Loans, & Texas Veterans Land Board

               With Fixed rate mortgages, your payment will stay the same over the life of  of the loan with the exception of your escrow account.  As insurance and  property taxes change, your escrow payment will be adjusted.  Typically these  are 30 year loans.  All of the different FHA loans have the same buyer  qualifications.

FHA (Federal Housing Administration) 203B

1.  Gives more flexibility in calculating household income and payment ratios  than conventional loans.

2.       Requires a 3% investment in your home with a minimum down payment of 2.25%.      

3.       You must occupy the home.

4.       Maximum loan amount is approximately $202,000.

5.       Typically closing costs and prepaids run about 3% of the sales price.

Some sellers are willing to assist buyers with the 3% cost.

6.       Fixed rate mortgage.

FHA 203K – Rehab loans

1.       Allows an owner/occupant to finance the home plus repairs needed.  A  

repair escrow account is set up and paid as completed.  All repairs are done after closing. 

2.       Bids and contractors must be approved.

3.       Structural repairs can be made.

4.       The mortgage is eligible for an increase of up to 20% of the maximum insurable mortgage if such an increase is necessary for the installation of solar energy equipment.  The value must be cost effective.      

                         FHA 203K Streamline

1.       The perfect loan for a not so perfect home.  Perfect for homes needing cosmetics.  Those improvements can be financed into the home.

2.       Maximum escrow for improvements is $35,000.

3.       You can use the escrow for paint, flooring, appliances, roof, HVAC systems, plumbing, electrical, and weatherization.

4.       Structural repairs cannot be made.

5.       New construction is not allowed (additions to the home).

6.       Must begin work within 30 days of closing.

7.       Work must be completed within 2 months.

8.       $350 supplemental fee.

9.       Interest rate is .25% higher than standard FHA loan.

10.  Must be an owner/occupant.

FHA – EEM Program

1.       Allows buyer to finance energy efficient improvements into the loan.

2.       The improvements must be cost effective.

3.       Limited to the higher of

A,  5% of the property value (maximum $8000).

B.  $4000

                        VA (Veterans Administration)

1.       A terrific loan for veterans.

2.       Includes 100% financing.

3.       A 2% funding fee is paid upfront (may be financed into the loan) and there is no monthly mortgage insurance premium.

4.       The home must meet certain conditions.

Texas Veterans Land Board

1.       A great program for Texas veterans purchasing land.

2.       The Veterans Housing Assistance Program (VHAP) provides financing up to $325,000 on homes.

3.       All new housing must be Energy Star qualified homes (meeting EPA guidelines).

4.       An amazingly low interest rate – Texas Vets only.  Veterans, check it out!

USDA Rural Home Loans (United States Dept of Agriculture)

1.       This loan only applies to properties located in designated rural areas.  Rockwall qualifies.  Wylie qualifies.  Seagoville qualifies.  There are more great areas outside of the metroplex.

2.       No down payment requirement.

3.       No loan limit.

4.       No private mortgage insurance.

5.       102% financing of appraised value.

6.       Ability to include closing costs, prepaids, and repairs up to appraised value.

7.       620 credit score.  Extenuating circumstances considered.

Privately insured loans:

            Conventional, Stated Income, & Interest Only loans.

            The interest rate may be a fixed rate or an ARM (adjustable rate mortgage).    

            ARM payments are adjusted yearly based on the current interest rate.

             Initial payments start out low but there is a potential for high payments if rates go up.  ARMs make the most sense when you only plan to keep the property  a few years.

Conventional loans:

1.       All of the advertisements you have seen regarding 100% financing and  103% financing are conventional loans.  They are no money down loans.   They do have closing costs and pre-paids.

2.       Qualifying is a little more stringent than for FHA.  You need a little more  income and a little less debt to qualify.

3.       Conventional loans with100% financing typically have higher closing costs since the borrower has no investment in the home.

4.       Closing costs and prepaids usually run about 6% of the sales price.

5.       If the seller is asked to assist in closing costs & pre-paids for the buyer, 6% is a lot.

6.       Originally buyers had to have at least 5% to 10% down payment.  That is no longer the case.

7.       Be sure you know whether it is a fixed rate or an adjustable rate.

8.       Your payment should include principal, interest, escrow, & pmi (private mortgage insurance).

Stated Income loans

1.       Income does not have to be verified.

2.       Must qualify on credit.

3.       Usually these loans have a higher interest rate.

4.       May not have an escrow account attached.  Then you pay your own taxes & insurance.

5.       May have a balloon note attached.

Interest Only loans

1.       Your payment is interest only for a number of years.

 (Perhaps it is interest only for 5 or 10 years.)

2.       At the end of the interest only period, the loan is amortized by the remaining years of the loan.  Your payments go up.

3.       Interest Only loans are for borrowers who want a lower initial payment, and believe they will be able to deal with a price increase in the future. 

4.  This loan could be considered if you were planning to sell in 5 years.

Is that enough?  I think so.