Finding the right finance solution for you
There are many different types of home mortgage financing available for your new home buy. Home mortgage financing simply refers to the financing on your home, which is secured by a bank or lending institution on the property you are purchasing. The easiest way to obtain financing is to contact a professional in your area, but do your homework first. Know what your situation is and what you are willing to put down on a home, and also what you're willing to pay each month for your house payment.
Home Mortgage Financing Options
Depending on your situation, a certain type of loan may work better for you than for someone else. Just a few of the variables in mortgages can be your job history, your salary, your credit history and even the area in which you are purchasing.
Below are explanations of a few types of loans available for your home financing to help you decide which is the best for your current situation. Don't be discouraged if your credit is not perfect, there are some creative financing ideas that may work for you.
Conventional Mortgage Financing
Conventional loans run a wide array of loans, from adjustable rate mortgages to sub-prime mortgages, and interest-only mortgages to a 40-year fixed-rate mortgage. However, there is a catch. Conventional loans are score driven, which means that if your credit is less than perfect you will fall into the sub-prime range. This, in turn, will raise the interest rate you receive. If your credit scores are in the above average range, then conventional financing may be the way to go. Rates for those with great credit are extremely competitive in the conventional financing area. The lower your score drops, the higher the interest rate you will receive.
FHA loans are backed by the government under the Federal Housing Administration. These loans are good for those who have had credit issues in the past, but have worked to repair them and have no derogatory credit in the past 12 to 24 months.
Interest rates on FHA loans are very competitive. Most people choose a 30-year fixed-rate mortgage but the FHA does offer a 20-year and 15-year note as well. There are also ARMs (adjustable rate mortgages) available through the FHA. They are typically 1-, 2- or 3-year ARMs but can be obtained with a 5-year fixed period. These types of loans are usually not credit score driven, but with the market in such turmoil, some lenders are starting to require a certain score for financing (although it is not comparable to the score requirements on conventional financing).
Creative Mortgage Financing
On an FHA loan, alternative documentation is available. This means that if you don't have current credit accounts open, you can use alternative trade lines to show your payment history. These accounts, or trade lines, can be anything from utility bills to day care payments.
If you have served in the armed forces, you may qualify for a VA loan. This type of loan is only available for veterans and their immediate families. VA loans offer great rates and are backed by the Veteran's Administration. This program helps to get veterans into a home with little or no money up front. Another benefit of the VA loan is there is no private mortgage insurance requirement, which is required on both the conventional and FHA loans.
In each of these categories there are sub-categories, one of which could work for you. Knowing where you stand is the first step toward homeownership. Figure out your budget and what you can afford per month before you talk to your lender. Always be honest with your lender about your situation, as it will only help him or her to help you find the right financing fit.
By Kim Shuford