Many people who are considering buying their first home can be overwhelmed by the myriad of financing options available. Fortunately, by taking the time to research the basics of property financing, homeowners can save a significant amount of time and money. Having some knowledge of the specific market where the property is located and whether it provides incentives from lenders may mean added financial perks for buyers. Buyers should also take a look at their own finances to ensure they are getting the mortgage that best suits their needs. Read on to find out which financing option may be right for you.
Conventional loans are that are not insured or guaranteed by the federal government. Although they are the most difficult to qualify for due to their requirements for criteria such as down payment, credit score and income, certain costs, such as PMI or private mortgage insurance, can be lower than with other guaranteed mortgages. Conventional loans are defined as either conforming or non-conforming loans. Conforming loans comply with the guidelines set forth by FNMA (Fannie Mae), MGIC, or Freddie Mac, the eventual purchasers of the loans' note. These government backed companies create guidelines, such as loan limits - $417,000 for single-family homes, for example, because they package these loans and sell securities on them in the secondary market.
Loans made above this amount is known as a Jumbo Loan and usually carries a slightly higher interest rate, because of the lower demand for loan pools with these loans in them.
The Federal Housing Administration (FHA), part of the U.S. Department of Housing and Urban Development, provides various mortgage loan programs. A FHA loan has a 3.5% down payment requirement, and is easier to qualify for than a conventional loan. FHA loans are excellent for first-time home buyers because in addition to lower upfront loan costs and looser credit requirements, but cannot exceed the statutory limit of $271, 050 in Arizona.
The U.S. Department of Veterans Affairs (VA) guarantees Va loan. The VA does not make loans itself, but guarantees mortgages made by qualified lenders. These guarantees allow veterans and service people to obtain home loans with favorable terms, usually without a down payment, and in most cases they are easier to qualify for than conventional loans. Lenders generally limit the maximum VA loan ($417,000 for Arizona). Before applying for a loan, request a certificate eligibility from the VA using your DD214. If you are accepted, the VA will issue a certificate of eligibility to be used in applying for a VA loan.
Single Family Housing Programs provide Home ownership opportunities to low and moderate income rural Americans through several loan, grant, and loan guarantee programs. The programs also make funding available to individuals to finance vital improvements necessary to make their homes decent, safe, and sanitary. These can be "0" down payment loan, but require to be in rural areas. The town of Maricopa and San Tan Valley qualify for these loans. In addition to these common loan types and programs, there are bond programs sponsored by the state or Maricopa County, such as "Home in Five" program, often with the goal of increasing investment or home ownership in certain areas. Most information courtesy of Robert Stammers, CFA, is an independent consultant.