Trying to find the perfect mortgage for you?
Here are few options to consider if a first time home buyer.
Buying your first home can be a complicated, and sometimes stressful life event. Between coordinating with your real estate agent, lender, attorney and home inspector there is often a tendency for first time home buyers to feel overwhelmed. The goal of this article is to assist you with choosing the proper home loan, and add simplicity to the overall process. Our firm has no affiliation or partnership with any of the programs/lenders mentioned. For purposes of this article every effort has been made to provide updated accurate information. As with all aspects of the home buying process it is highly recommended that you conduct your own research prior to any decision. With that said, let’s explore some options.
The Federal Housing Administration (FHA)
The Federal Housing Administration is overseen by Housing and Urban Development. FHA doesn’t actually issue loans, but instead insures them against default. Low down payment, qualifying ratios and credit score requirements make mortgages insured by FHA attractive to many first time home buyers. A 3.5% down payment loan is available for those with a 580 or better credit score, however options are available for those with a score as low as 500. You’ll want your home ownership expenses (mortgage + property taxes + HOA + MIP + property insurance) to be less than 31% of your total gross monthly income, and all monthly expenses to be less than 43%. FHA allows for up to 6% of seller concessions to applied to closing costs (you’ll still need the down payment), something to consider when negotiating with the seller.
Mortgage insurance in a requirement for almost all FHA loans. This is broken down into two parts, an upfront mortgage insurance premium and an annual mortgage insurance premium. Using a 3.5% down payment loan as an example, the UFMIP costs 1.75% of the initial mortgage amount, which can be rolled into the loan if you chose and approved by lender. For loan balances under $625,500.00 The annual MIP would be 0.85% of the remaining loan balance each year. If you elect a 30 year term with less than 10% down at time of purchase the annual MIP will stay until the loan is paid off, or refinanced into a different product. Your initial thought most likely is what a huge waste of money. It’s important to note however that these loans generally have lower APRs and closing costs compared with other products, so you’ll want your lender (a list of HUD approved lenders can be found here ) to run the numbers with you to identify which loan makes the most sense for your situation. More information can be found visiting HUD.
HomeReady by Fannie Mae
The Federal National Mortgage Association, commonly known as Fannie Mae, is a government-sponsored enterprise whose goal is to add liquidity to the mortgage market. A fairly new offering, HomeReady is a low down payment alternative to FHA. The qualifiers for HomeReady are a 3% down payment, 45% debt to income ratio (your total monthly reoccurring expenses compared to gross monthly income) and a 620 credit score or above. A nice bonus is that with HomeReady the entire 3% down payment can be in the form of a gift, and income from others living in the property can be counted towards qualifying, even if they’re not on the mortgage. There is a required course on home ownership in order to be approved, however the cost is nominal and well worth the time for any first time home buyer.
The product is designed to help low/medium income earners as well as those in disaster impacted areas. As a result there are income limits put on borrowers. Please consult Fannie Mae for your specific area or reach out to your local bank/credit union/mortgage broker, as a vast majority offer Fannie Mae loans. Another distinct aspect of HomeReady is there is no upfront mortgage insurance premium, and the annual MIP falls off after the loan to value reaches 80% of the purchase price. For a more detailed description check out HomeReady FAQs
Trustco Bank Hometown First Time Home Buyers Program
Trustco Bank, headquartered in Glenville, NY is a portfolio lender, meaning its mortgages are originated and serviced in house. With a 5% down payment and significantly lower closing costs than other options we’ve discussed, the First Time Home Buyers Program is attractive on several fronts. There are income limits to consider, so make sure to check out the banks page dedicated to First Time Home Buyers. One additional item worth mentioning is if a 10% down payment is an option for you, consider Trustco’s traditional mortgage, as it requires no mortgage insurance paid by the borrower.
SONYMA Low Interest Rate Program
The State of New York Mortgage Agency assists low to moderate income earners achieve home ownership through several different loan options. The Low Interest Rate Program offers financing up to 97% of the purchase price, however for a slightly higher interest rate borrowers can elect down payment assistance. That amount is forgiven after 10 years assuming the loan is still in place and the property is your primary residence.
Interest rates are comparable with other 3% down options like HomeReady, and also require mortgage insurance that falls off once certain criteria is met. Not all lenders offer SONYMA loans so make sure to research available lenders. For specifics on the Low Interest Rate Program head over to SONYMAs website.
Wrap Up
While the previously described products are all worth looking into, this is by no means a be-all and end-all of options available to you. Don’t be afraid to interview multiple lenders and ask what differentiates their offering from those of others in the area. Depending on where you live and what your level of income is there may be local grants/subsidies available to you as well.
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