“The ache for home lives in all of us, the safe place where we can go as we are and not be questioned.” – Maya Angelou
I am finally in a position where I can look at purchasing my first home. What excitement! However, before I get ahead of myself, rush out, and sign an offer to buy a house, I need to make sure that I understand all of the different home loan options that are available to me.
I have had a look at all of the different Texas mortgage lenders that are currently in the market place, and I have noted that there is a First Time Home Buyer loan program. It looks interesting and exactly what I require; however, I’m going to compare it with some of the other mortgage options. I also need to ensure that I understand the jargon contained within the different loan descriptions.
Mortgages or a Home Loans
A mortgage or home loan is a loan that is secured by property. In simple terms, a mortgage lenderis an individual or institution who will lend a home-buyer the money to purchase the house and take the value of the home as collateral for the mortgage. Should the monthly repayment obligations not be met, the lender will repossess the house and sell it in order to defray the outstanding loan costs.
Proof of Eligibility
I need to calculate the maximum amount that I can afford to pay for a new home. Thus, before I contact any real estate agents to start viewing houses, I need to make sure I have the following documents and figures ready:
- Proof of my monthly income
- A total of all of my monthly debt payments such as car loans, student loans, and credit card payments
- Proof of my credit score
- The cash I am planning to put down as a deposit
- The calculation which determines what I can afford to repay every month on a mortgage.
Home Loan Programs
There are a number of different types of home loan programs available for home-buyers to choose from. Some of the more important programs are as follows:
- FHA loans
A FHA loan is a loan which is secured by the Federal Housing Administration (FHA). In order to take out a FHA mortgage, borrowers need to pay mortgage insurance which protects the lender should the borrower no longer be able to pay the monthly instalments. The FHA is the largest loan insurer in the world, and it has insured over 34 million houses since its inception in 1934.
- VA home loan assistance
The Department of Veterans Affairs provides home loan assistance to current service members, veterans, and eligible surviving spouses. The original home loan is provided by any one of the private banks or mortgage lenders; however, the VA guarantees a portion of the loan.
- USDA (United States Department of Agriculture)
The USDA offers a Single Family Housing Guaranteed Loan Program which is targeted at low- and moderate-income households who want to build, relocate or renovate their own home in an approved rural area. The USDA offers eligible applicants a 90% guarantee on a mortgage in order to reduce the risk of offering 100% loans to these applicants.
- Conventional mortgage
A conventional mortgage is a home loan that is not backed, guaranteed, or protected by the federal government. It conforms to the credit limits set forth by Freddie Mac and Fannie Mae – the leading source of government-sponsored financing for mortgage lenders. Freddie Mac and Fannie May offer conventional loans at both a fixed or adjustable rate.
- Non-qualified Mortgage
A non-qualified mortgage is a loan does not comply with the Qualified Mortgage rule. It has also been designed for people who cannot provide a fully-documented income statement, but they have a large number of assets. In practical terms, the borrower needs to own a substantial number of assets before the lender will consider a non-qualified mortgage.
- Non-conforming Jumbo
A non-conforming mortgage is essentially a loan that does not conform to the guidelines set down by Freddie Mac and Fannie Mae. A jumbo loan is a mortgage that exceeds these guidelines; ergo a non-conforming jumbo mortgage is a high-value loan that does not confirm to Freddie Mac and Fannie Mae’s guidelines.
Even though the process of purchasing a new home is a lot of work with many decisions to make, I am really looking forward to owning and moving into my own home. I have been working towards purchasing my own home ever since I graduated from college!