Whether you are a first time home buyer or looking to upgrade your residence, finding the right loan for that purchase is just as important as finding the most desirable home.
There are more primary home purchase loan options available than you might realize, and finding the best option, at the best rate, to suit your overall goals can be a challenge. What are my down payment options?
There are two factors that you should consider when choosing which loan option is right for you:
- What are my long term goals?
- How can I get the best rate?
Review: First Time Home Buyer Program
"As a first time home buyer, Sharam really helped lead me through the steps from start to finish with my mortgage..." ...read more
– David D'Eramo, July 2013
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What Are My Down Payment Options?
Why is the amount of your down payment important? The amount of your down payment affects whether or not you will be paying mortgage insurance and it affects your interest rate, and both of these factors will affect how much you pay every month for your mortgage. MI is an additional fee you may have to pay if your down payment is too small, and the higher your interest rate, the more you’ll be paying every month in interest alone. Over the course of a 30 year mortgage, you can see how these extra expenses can really add up! So, what are the options?
- Down Payment and Mortgage Insurance
Conventional loans are loans that are not backed by the Federal Government, and generally require a credit score of 640. If you’re doing a conventional loan you must put down at least 5%, which is only $5,000 for every $100,000 that you borrow. That’s not too bad, right? But putting down the bare minimum or any other amount less than 20% (that’s $20,000 on a $100,000 loan) will result in mortgage insurance. Mortgage insurance (MI) is an additional cost a borrower pays to offset the risk of the lender. You only pay MI until you have reached the 22%. If you put down 20% or higher you do not have to pay mortgage insurance.
What if you don’t have 20%, or even 5% to put down? You may still qualify for an FHA loan, which typically requires that you only put down 3.5%. Qualified veterans are encouraged to apply for a VA loan, which has no MI requirement and may not require a down payment at all! The credit score requirements for VA and FHA loans are easier to meet as well. Most banks only require you to have a score of 580 or higher.
- Down Payment and Interest Rate
Simply put, the higher your down payment, the better your rate. The better your rate, the less you spend every month paying interest on your loan.
What Are My Long Term Goals?
The amount of time that you want to spend living in your home can be a huge factor. If you think you might want to spend the next 20 or more years living there, then only look at fixed rate mortgages. Fixed rate mortgages have a slightly higher interest rate, but you’ll be grateful when 10 years down the road, your rate is not subject to market inflation and adjustment. If you think you only want to live in your home for the next 2-5 years, you may want to take advantage of an adjustable rate mortgage. This will allow you to take advantage of an interest rate that is almost 1% lower than it would be with a fixed rate mortgage. Like we said before, a lower interest rate equals a smaller monthly mortgage payment every month.
How Can I get the Best Interest Rate?
The short answer for this question is: do your research. The better your credit score and the higher your down payment, the lower your interest rate is likely to be. However, there are other factors. Many banks offer what we in the industry call a retail rate. Just as an item may be cheaper when you buy it at a wholesale price from the warehouse instead of getting it at the store, banks and lenders will traditionally charge you a slightly higher rate in order to cover their extra expenses. These expenses include the cost of employee salaries, employee benefits, and the amount they charge for the time it takes them to process your application, amongst other things. If you want the best rate, don’t work directly with the bank. Use a professional mortgage broker who can offer you a wholesale rate, and take your time looking for the broker that will offer you the best rate possible in your area. You might be thinking, with today’s historically low rates, does it even matter who I deal with? Aren’t they all going to offer me a lower rate than I would have qualified for in the past? The answer to this is simple. Paying more than you need to on a loan, even for just one year, means less money you have to spend on other things in your life. When you consider that there’s a chance you’ll be paying on this loan for more than 20 years, that turns into a lot of extra interest you’ll be paying. It’s definitely worth your extra time to shop around. The rate you get matters!
What Florida Home Funding Offers Homebuyers
We are more than pleased to be able to offer the following mortgage loan guidance and support:
- Quick rate quotes and pre-qualification
- Current financial analysis to help you determine what you can afford based on your current and expected income growth
- In-depth discussion of your different mortgage options based on your future goals
- Thorough explanation regarding the loan process from start to finish
- Arrangements for any appraisals, title reports and inspections
- Open, professional communication with you throughout the loan application process
We offer the following Purchase loan programs:
Call (407) 704-8729 or (888) 515-6048 to speak with a licensed mortgage professional or complete the fast quote form now. Find out more about First Time Home Buyer Program click here