When a lender is considering granting a loan, he or she will consider three areas:
- Credit Reputation
Collateral — When reviewing collateral, a lender will look at the value of the home and the down payment.
Appraised value of the home — The lender wants to ensure that the value of the home would support the amount of the mortgage. The lender will order a professional appraisal to estimate the value.
Down Payment — The amount of the down payment will be dependent upon which type of loan is being purchased. Those borrowers with a larger down payment will be considered stronger borrowers and pose less risk to the lender. The lender will also verify the source or origin of the down payment.
Capacity — Capacity is the borrower’s ability to repay the mortgage. Income, debt, and cash reserves will be verified. In this analysis, the lender will be looking at debt-to-income ratios.
Credit Reputation — A lender will review the borrower’s credit report to determine the borrower’s credit history. Written explanations will be required for any credit problems such as a history of late payments, foreclosures, judgments, etc.
If there is a loan denial, the lender must furnish the purchaser with a reason for the denial.
If the loan will be granted, a firm commitment is issued to the borrower and the lender prepares for closing the loan.
Note: There are a number of federal laws which protect consumers during this process. Among them: the Equal Credit Opportunity Act, the Fair Housing Act, and the Real Estate Settlement and Procedures Act (RESPA).
In an FHA loan, the Federal Housing Administration insures the mortgage. The FHA is an agency within the U.S. Department of Housing and Urban Development (HUD).
FHA LOANS typically come with competitive interest rates, smaller down payments and lower closing costs than conventional loans.
If you have a credit score of 580 or higher, you could be eligible for a mortgage with a down payment as low as 3.5 percent of the purchase price. If your credit score is lower than 580, you still might qualify for an FHA mortgage, but the down payment would be at least 10 percent of the purchase amount.
The U.S. Department of Veterans Affairs (VA) helps active-duty military members, veterans and surviving spouses buy homes.
The VA guarantees part of the loan, making it possible for lenders to offer some special features.VA LOANS come with competitive interest rates and require no down payment. You aren’t required to pay for private mortgage insurance-PMI, and a minimum credit score isn’t needed for eligibility.
If it becomes difficult to make payments on the mortgage, the VA can negotiate with the lender on your behalf.
While not well known, the U.S. Department of Agriculture (USDA) has a homebuyer assistance program.
While the program focuses on homes in certain rural areas, you don’t need to buy or run a farm to be eligible.
The USDA guarantees the home loan. There may be no down payment required, and the loan payments are fixed.
Applicants with a credit score of 640 or higher typically get streamlined processing. With a credit score below 640, you still can qualify for a USDA loan, but the lender will ask for extra documentation about your payment history.
Good Neighbor Next Door
The Good neighbor next door program sponsored by HUD, provides housing aid for law enforcement officers, firefighters, emergency medical technicians and pre-kindergarten through 12th-grade teachers.
Fannie Mae or Freddie Mac
Fannie Mae and Freddie Mac are government-sponsored entities. They work with local lenders to offer mortgage options that benefit low- and moderate-income families.
With the backing of Fannie Mae and Freddie Mac, lenders can offer competitive interest rates and accept down payments as low as 3 percent of the purchase price.
Fannie Mae also provides homeownership education for first-time homebuyers through its home path ready Buyer program.
Energy-efficient mortgage (EEM)
An energy-efficient, or “green,” mortgage is designed to help you add improvements to your home to make it more environmentally friendly. The federal government supports EEM loans by insuring them through the FHA or VA programs.
The key advantage of this mortgage is that it lets you create an energy-efficient home without having to make a larger down payment. The extra cost is rolled into your primary loan.
Some improvements you can make include installing double-paned windows, new insulation or a modern heating-and-cooling system.
FHA Section 203(k)
This type of loan, backed by the FHA, takes into consideration the value of the residence after improvements have been made. It then lets you borrow the funds you’ll need to carry out the project and includes them in your main mortgage.
The down payment for a 203(k) loan can be as low as 3% down.
8. Native American Direct Loan
Since 1992, the Native American veteran direct loan program has helped Native American veterans and their spouses buy homes on federal trust lands. The VA serves as the lender.
If you’re eligible, you won’t be required to make a down payment or pay for private mortgage insurance (PMI).
This first-time homebuyer loan also offers low closing costs and a 30-year fixed-rate mortgage.
9. Local grants and programs
In addition to the various programs provided by the federal government, many states and cities offer help to first-time homebuyers.
Before buying a home, check your state’s or community’s website for information on housing grants and programs available in your area.
10. Contract for deed financing Minnesota and Wisconsin.
Sellers will want at least 10% down of the sale price of the house to do a cd. credit usually isn’t an issue. The length of the terms of the land contract are 3-5 years sometimes more if the seller is willing to go longer. Rates are around 5-6% on average.
1st time homes buyers programs.
Contact Steve Vennemann
BoardWalk Premier Realty INC
Full service Real Estate Company.
For homes for sale or Down payment assistance.