Tip 6: Make A Larger Down Payment

Tip 6: Make A Larger Down Payment

Many people are surprised that there are so many types of home loans to choose from when they start thinking about buying a home. Conforming loans like those ID installment loans purchased by Fannie Mae and Freddie Mac are loans made by private lenders according to their own criteria, which must meet Fannies and Freddies standards but can be stricter.

Government-backed loans differ from conforming loans because the government insures them, and therefore lenders are taking less of a risk should the borrower default.

Learn more about each of these loans and compare them to the conventional loan. Decide if any of them are a better option for you based on benefits and eligibility requirements.

FHA Loans

Some of the biggest benefits of an FHA loan are its relaxed eligibility requirements and relatively low cost. To qualify, you need a minimum FICO® Score of 580 at Rocket Mortgage and a minimum down payment of 3.5%. You may also still qualify to get the loan even if you’ve filed for bankruptcy or struggled financially in the past.

There are a couple of downsides, however. The FHA requires mortgage insurance premiums (MIP) to be paid for 11 years, even if you reach the 20% home equity threshold that would allow you to drop PMI on conventional loans before then. Another downside is that the FHA appraisal process which can be more comprehensive than most home appraisals can be less attractive to sellers fielding multiple offers.

VA Mortgages

If youve served in our nations armed forces or are a qualify surviving spouse, you may qualify for a VA loan. These are generally the most favorable mortgages around. To get a VA loan, you must have a Certificate of Eligibility. You can qualify for a VA loan with a lower credit score and higher debt and may not be required to pay a down payment. With limited exceptions, you’ll have to pay a funding fee the VAs equivalent of PMI but its a one-time fee and can be rolled into the mortgage. To be approved, you must have a debt-to-income ratio of no more than 60% and a minimum FICO® Score of 580 at Rocket Mortgage.

USDA Home Loan

A USDA loan requires no down payment and may allow you to roll your closing costs into your loan. Backed by the U.S. Department of Agriculture, this loan has eligibility requirements that include a minimum FICO® Score of 640 for many lenders, a household income that falls below the USDA limit and a home that is located within an eligible rural or suburban area. Rocket Mortgage doesnt offer USDA loans at this time.

Keep this in mind: the more of a down payment you make now, the less money you’ll need to borrow and the more equity you’ll start out with. Lenders think of equity in terms of the loan-to-value ratio (LTV). A higher down payment means a lower LTV, which means you’ll be less of a risk to lenders, which means you might qualify for a better rate. With a lower mortgage balance and better mortgage rate, you’ll pay less each month and ultimately reduce the total interest you pay on the loan. That could equate to thousands of dollars saved.

That said, sometimes you just cant put enough money aside to reach a 20% down payment any time soon. Thats OK too. Just get the best mortgage you can right now, and make sure your lender removes PMI once you hit 20% equity, or for FHA borrowers plan to refinance into a conventional loan once you reach 80% LTV.

Sister Bi Nghiem

Sister Bi Nghiem è nata e cresciuta in Germania ed è stata una bibliotecaria professionista. Dal 1975 al 1985 ha vissuto a Montreal, in Canada, dove ha studiato letteratura francese e italiana. Nel 1998 è stata ordinata monaca da Thich Nhat Hanh e nel 2006 ha da lui ricevuto la Trasmissione della lampada del Dharma. Dopo essere stata per 10 anni monaca a Plum Village, si è trasferita in Germania con il primo gruppo di monaci quando nel 2008 è stato fondato l'EIAB (European Institute of Applied Buddhism, Istituto Europeo di Buddhismo Applicato. Da allora vive all'EIAB, dove offre corsi e ritiri ed è responsabile del programma annuale e della rivista dell'EIAB. Offre anche ritiri in diversi paesi in Europa e all'estero. È particolarmente interessata alla psicologia occidentale e buddhista, alle neuroscienze, alla medicina alternativa e al dialogo interreligioso. Le piace camminare nella natura e ama gli incontri umani profondi. La danza improvvisata e il clowning le danno molta gioia.