When it comes to buying a home, one of the biggest factors to getting the house you want is qualifying for the right mortgage. But what types are mortgages are out there? And how do you know which one is right for you and your situation? We spoke with local lending expert Ginger Carnright, residential mortgage loan originator at Premier Nationwide Lending, to answer these questions and more. Check it out!
There are four different loan types: conventional, Federal Housing Administration (FHA), Veterans Affairs (VA), and U.S. Department of Agriculture (USDA).
Even if someone qualified for all four loan types, they would have to have the right criteria for each one, says Carnright. For example, a conventional loan is usually approved for those who have great credit, while VA loans are exclusive to those who have served or are currently serving in the military.
Requirements can vary based on lender, but 620 is typically the minimum credit score needed to quality for a conventional loan, and 740 is the score you’d need to get a good interest rate. Conventional loan terms are usually for 15, 20 or 30 years. Carnright adds that first-time home buyers can put as little as 3% down on a conventional loan. If it’s not a person’s first time buying a home, they must put 5% down.
FHA loans require a lower minimum down payments and credit scores than many conventional loans. The minimum down payment is 3.5%, and they are federally backed mortgages designed for low-to-moderate-income borrowers who may have lower than average credit scores. Loan terms are typically 15 or 30 years.
VA loans are 0% down loans reserved for those who have served in the military, are currently serving in the military, or are the surviving spouse of someone who served in the military. Each individual’s length of service or service commitment, duty status and character of service determines his or her eligibility for specific home loan benefits.
USDA loans are also 0% down loans, but a couple of qualifications must be met to be eligible, Carnright says. First of all, all USDA loans in America have income limits based on the county in which the property is located. The other component is that the property has to be eligible for a USDA loan. That can be discovered at www.usda.gov, where property addresses can be typed in to see if they are USDA eligible or not.
“You should truly work with a lender who can show you all the loan types you’re qualified for and what that loan looks like on paper,” Carnright says. “You want to know what your monthly payment would be. While every loan will have the same sales price, each loan will have a different down payment requirement, and each loan will have a different interest rate. My job as a lender is to help people determine which loan best suits their needs.”
Carnright adds that if the only reason someone is not buying a house is because they’re waiting to save up money for a down payment and closing costs, they should talk to their lender, because the state of Texas has many down payment assistance programs home buyers can qualify for, including:
- Texas Department of Housing and Community Affairs
- Texas State Affordable Housing Corporation
- Southeast Texas Housing Finance Corporation
- Housing Authority of Travis County (only for those who are purchasing a home in Travis County)
Is refinancing right for you?
Carnright talks with many people about refinancing, and to most of them, she tells them it’s a good idea.
“To consider refinancing it has to make financial sense,” she says. “You need to be lowering your monthly payment enough to where it makes sense to add on the closing costs that are necessary to be paid at closing when you refinance. You can roll in the closing costs to your new payment, but of course, that will increase your payoff balance. You have to make sure you come out ahead.”
Carnright says that means homeowners and their lenders need to work together to look at the numbers while going through the refinance application.
“You also have to think about, how long do you expect to still live in this house, to make the savings on the monthly payment make sense?” she adds. “If you don’t owe much and you’re not planning on being in that house for the next four to five years, it doesn’t make sense. Yeah, a $150 lower mortgage payment is great, but paying those closing costs takes away from your equity.”
Ultimately, Carnwright says there’s a lot to consider when refinancing a home. Using a quality lender to help you through the process is key, and with interest rates currently at historic lows, now is a good time to look into it if you’ve ever been curious. However, make sure it will financially smart for you to do so.
If you’re ready to buy a new home, let Andrea Curry, residential and commercial Realtor® with JB Goodwin, help you find the right one! Ms. Curry has more than 13 years of experience serving the Austin and Central Texas areas. Call (512) 547-0823 today!