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| At Palmetto Dream Homes we help you with your mortgage |
As a Realtor I feel that it's my responsibility to have a decent understanding of mortgages. Mortgages in real estate can be compared to the oil in our car. It's what drives the market with it's options, rates, and overall need for it. As you can assume most people are not paying cash for a home but a friend of mind recently sold a 6 million dollar home for cash. That's pretty impressive, eh? Since most of my readers probably don't have a few million, or even a few thousand, in cash (if you do and want to buy please call me today) you should know a bit about mortgages. Disclaimer: I am NOT a mortgage professional and will always send you to one of my lenders I work with. This information will be part my knowledge and part research (http://www.homebuyinginstitute.com/mortgagetypes.php) and will be pretty general in terms.
Conventional:
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Conventional home loans are not insured or guaranteed by the federal government in any way. This distinguishes it from the three government-backed mortgage types explained below (FHA, VA and USDA). I belive a conventional requires at least 5% down (although this changes frequently so check with your lender) but anything less than 20% down will require PMI. When you make a down payment of less than 20%, the lender requires private mortgage insurance, or PMI. The policy protects the lender from losing money if you end up in foreclosure. PMI also is required if you refinance the mortgage with less than 20% equity.
Combining: It's important to note that borrowers can combine the types of mortgage types explained above. For example, you might choose an FHA loan with a fixed interest rate, or a conventional home loan with an adjustable rate (ARM).
Conventional home loans are not insured or guaranteed by the federal government in any way. This distinguishes it from the three government-backed mortgage types explained below (FHA, VA and USDA). I belive a conventional requires at least 5% down (although this changes frequently so check with your lender) but anything less than 20% down will require PMI. When you make a down payment of less than 20%, the lender requires private mortgage insurance, or PMI. The policy protects the lender from losing money if you end up in foreclosure. PMI also is required if you refinance the mortgage with less than 20% equity.
Government back loans:
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FHA Loan: The Federal Housing Administration (FHA) mortgage insurance program is managed by the Department of Housing and Urban Development (HUD), which is a department of the federal government. FHA loans are available to all types of borrowers, not just first-time buyers. The government insures the lender against losses that might result from borrower default. Advantage: This program allows you to make a down payment as low as 3.5% of the purchase price. Disadvantage: You'll have to pay for mortgage insurance, which will increase the size of your monthly payments.
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VA Loan: The U.S. Department of Veterans Affairs (VA) offers a loan program to military service members and their families. Similar to the FHA program, these types of mortgages are guaranteed by the federal government. This means the VA will reimburse the lender for any losses that may result from borrower default. The primary advantage of this program (and it's a big one) is that borrowers can receive 100% financing for the purchase of a home. That means no down payment whatsoever.
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USDA Loan: The United States Department of Agriculture (USDA) offers a loan program for rural borrowers who meet certain income requirements. The program is managed by the Rural Housing Service (RHS), which is part of the Department of Agriculture. This type of mortgage loan is offered to "rural residents who have a steady, low or modest income, and yet are unable to obtain adequate housing through conventional financing." Income must be no higher than 115% of the adjusted area median income [AMI]. The AMI varies by county.
FHA Loan: The Federal Housing Administration (FHA) mortgage insurance program is managed by the Department of Housing and Urban Development (HUD), which is a department of the federal government. FHA loans are available to all types of borrowers, not just first-time buyers. The government insures the lender against losses that might result from borrower default. Advantage: This program allows you to make a down payment as low as 3.5% of the purchase price. Disadvantage: You'll have to pay for mortgage insurance, which will increase the size of your monthly payments.
VA Loan: The U.S. Department of Veterans Affairs (VA) offers a loan program to military service members and their families. Similar to the FHA program, these types of mortgages are guaranteed by the federal government. This means the VA will reimburse the lender for any losses that may result from borrower default. The primary advantage of this program (and it's a big one) is that borrowers can receive 100% financing for the purchase of a home. That means no down payment whatsoever.
USDA Loan: The United States Department of Agriculture (USDA) offers a loan program for rural borrowers who meet certain income requirements. The program is managed by the Rural Housing Service (RHS), which is part of the Department of Agriculture. This type of mortgage loan is offered to "rural residents who have a steady, low or modest income, and yet are unable to obtain adequate housing through conventional financing." Income must be no higher than 115% of the adjusted area median income [AMI]. The AMI varies by county.
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