Homebuying is an exciting time. You envision yourself in a new home in the perfect neighborhood and the life you will experience there. The mortgage process can be intimidating for first-time homebuyers, but it doesn’t have to be. Knowledge is power. Beacon Homes wants to give you insight into financing options for your new home, so you can see how painless it can be!
Loan terms and rates
The first decision is to decide on the type of loan you want. The choice is commonly 15 or 30 years. A short-term (15-year) usually affords a slightly lower interest rate, but understandably presents a higher monthly payment. Over the life of the loan, you save on the total interest paid. A long-term (30-year) loan gives a higher interest rate, but the monthly payments are lower than a 15-year term because you’re financing the loan amount over a term that’s twice as long.
Whether you decide on a 15-year or 30-year loan program, you then choose a fixed rate or adjustable rate. With a fixed rate mortgage, you lock in the percentage you’ll pay when you submit your loan application. Your lender should let you know when you can lock in the rate.
An adjustable-rate mortgage (ARM) will change through the term of the loan. It could be monthly or annually, depending on the loan. You can lock in a rate for the beginning of the loan—like a 5/1 ARM, which gives a fixed rate for the first 5 years and then adjusts annually. Make sure there’s a rate cap on the loan, so you know the maximum the rate can increase. This type of loan works well with a short-term mortgage. If you plan to sell the home in 5 years or less, take advantage of the lower initial rate with an ARM.
Debunking the down payment myth
Someone told you that you must have 20% to put down when buying a house, right?
You could finance the entire cost of the home if you qualify for certain mortgage programs. If not, you could also consider other loan loans that require as little as 3% down.
Take a look at the choices for mortgages with zero or low down payments:
USDA Rural Housing Loan: The U.S. Department of Agriculture guarantees this loan, which applies to homes in areas that have been specified as “rural”. Currently, 97% of the country has loan-eligible property (click here to find locations). The home must be your primary residence (i.e., not a rental or a flip), and you must meet the USDA home loan income requirements. If you do qualify, even the closing costs can be included in the mortgage. Here’s the “however”: You must carry mortgage insurance. The 1% upfront fee can be paid at closing or included in your loan. The 0.35% monthly fee is included with your mortgage payment. But, it’s a small price to pay in order to buy a new home with no down payment.
VA Home Loan: The government rewards those who serve our country with a loan program for U.S. military veterans. The Veterans Administration provides this home mortgage to veterans, active servicepeople, and eligible surviving spouses. Like the USDA home loan, no down payment is required, as long as the appraised value meets or exceeds the purchase price of the new home. Even if you’re not a first-time homebuyer, the VA loan is available as long as you meet the eligibility requirements. Another bonus: No mortgage insurance is required.
FHA Home Loan: The Federal Housing Authority offers this program to help people with reasonable credit purchase a home with a 3.5% down payment. If you have a credit score of 580, you could qualify for this loan, whereas conventional loan programs would be out of reach. Not quite at a 580 FICO score? You can either spend a few months boosting your credit score or opt for the 10% down payment FHA loan for people with a credit rating between 500 and 579.
HomeReady Mortgage: Fannie Mae will finance up to 97% of your loan with this program, which is available to all homebuyers who qualify (not just first-timers). You can include the income of other people living with you. This mortgage program provides more flexibility with your income sources: gifts, cash-on-hand, and rent income from a roommate, for example. When you know you’re ready to be a homeowner but feel challenged by the income or down payment requirements, this 3% down payment program could be the right fit.
There are countless ways to configure the loan program that will work for you as a homebuyer. A savvy mortgage lender will review your options and give you the guidance you need. Talking to a lender should be your very first step on the path to homeownership, so you know what you can afford before you start looking. In both the Oklahoma City and Tulsa areas, Beacon Homes works with a variety of lenders, so contact us to get started, and take a look at our communities new construction single-family homes to see where the path could take you!