December 7th, 2017 8:01 AM by Jackie A. Graves, President
can make two predictions with confidence about 2018: Home sales will
accelerate, and your taxes will probably be affected in some way. As for
mortgage rates, who knows? They were low throughout 2017, and even after the
Fed raised rates twice, they remain low by historical standards.
say they often dispel the mistaken idea that homebuyers have to make down
payments of at least 20 percent. In fact, some loan programs allow qualified
people to buy homes with no down payment at all. Other loan programs allow down
payments as small as 3 percent or 3.5 percent.
Department of Veterans Affairs guarantees zero-down VA mortgages for qualified
borrowers: veterans, active-duty service members and certain members of the
National Guard and Reserves.
U.S. Department of Agriculture guarantees zero-down mortgages as part of its
Rural Development program. The loan guarantees are available in eligible areas
— mostly rural areas, though some are suburban.
Federal Credit Union offers zero-down mortgages for qualified members to buy
Federal Housing Administration-insured mortgages allow down payments as small
as 3.5 percent. And a few lenders offer conventional mortgages with down payments
of as little as 3 percent with private mortgage insurance.
Housing Administration-insured loans are appealing because they’re widely
available to borrowers with imperfect credit. In 2016, the average credit score
for an FHA homebuyer was around 686, while the average conventional homebuyer
had a credit score around 753.
need a credit score of 580 or higher to get an
FHA-insured mortgage with a down payment as low as 3.5 percent. If your credit
score is between 500 and 579, you need to make a down payment of at least 10
percent to get an FHA mortgage. But first you would have to find a lender that
would approve the loan.
are more crucial facts about FHA loans.
lenders don’t want you to deplete your savings on the down payment and closing
costs. They want you to have “reserves” — cash, or assets that can be sold
quickly, so you can take care of unexpected expenses without missing house
lender will calculate the minimum reserves you’ll need to qualify for a
mortgage. There’s a possibility that the reserve requirements will oblige you
to unexpectedly make a down payment of less than 20 percent, triggering the
need for mortgage insurance. To avoid mortgage insurance in this case, you’d
have to cancel the deal, scrape up more money for a down payment and wait while
you put aside more money.
would rather you have an emergency fund than not, even if it means you’ll have
to make higher house payments because of mortgage insurance.
people buy homes, they often “stretch” to make their initial monthly payments,
on the theory that their incomes will go up over time, making house payments
easier to cover.
it’s smarter to live within your means. You can move up to a more expensive
house after (and not before) your income rises. A conservative rule of thumb is
that all of your monthly debt obligations, including the house payment,
shouldn’t exceed 36 percent of your income before taxes.
say your household income is $5,000 a month: The monthly house payment, car
payments, student loans, credit cards, child support and other obligations
shouldn’t be more than $1,800, or 36 percent of that $5,000.
typical mortgage has thousands of dollars in mortgage fees and other closing
costs. If you pay those fees out of pocket, you tend to get the lowest interest
rate you're eligible for. But you might want to
accept a higher interest rate in exchange for the lender paying some or all of
the closing costs.
example, you might be offered an interest rate of 3.75 percent if you pay all
the closing costs, or a rate of 4.125 percent if the lender pays the closing
mortgages are attractive to people who plan to sell their homes
within five years or so. If you plan to stay longer than five or six
years, your total costs will be lower if you go ahead and pay the closing costs
out of pocket. It’s a balancing act, because paying the closing costs could
push you into making a smaller down payment, potentially forcing you to pay for
already mentioned Veterans Affairs-guaranteed mortgages, but these home loans
may be underused, even though they’re popular.
primary feature of VA loans is that they can be used to buy a primary home
without a down payment.
2016, approximately one-eighth of mortgages were guaranteed by the VA,
according to the Mortgage Bankers Association. But a 2010 survey found that
many home-buying veterans weren’t aware of the VA loan benefit or didn’t know
much about it. About a quarter of active-duty military personnel weren’t aware
that they were eligible for VA loans.
for a VA loan today.
those active-duty personnel believed that the VA loan benefit was available
only to retirees or veterans who have been discharged. In fact, VA loans are
available to honorably discharged veterans, those who are on active duty, or
who have completed at least six years of service in the National Guard or
selected Reserve units. Certain surviving spouses of veterans are eligible,
too. See a detailed
cash-out refinance happens when the homeowner refinances the mortgage for more
than the amount owed. The borrower pockets the difference.
refinances were popular during the real estate boom of the early 2000s. Then
they almost disappeared after the housing bust wiped out billions of dollars in
home equity. Now that home values have climbed near their pre-recession peaks
in many markets, cash-out refinances have returned.
Compare rates on
a mortgage refinance.
you’re eligible for a VA-guaranteed mortgage, you might be able to refinance
from a conventional mortgage (or an FHA-insured mortgage) into a VA loan.
for a VA loan today.
many cases, you can refinance for up to 100 percent of the home’s current
value. This means you can do a cash-out refinance using a VA loan. Funding fees
for cash-out VA refinances vary from 2.15 percent to 3.3 percent, and the fee
can be added to the loan balance.
your finances as boring and steady as possible between the time you apply for a
mortgage and the time you close on the loan.
sounds simple in theory, but it’s sometimes difficult in practice, especially
for first-time homebuyers. What it means is this: Don’t charge up your credit
cards and don’t apply for new credit while the mortgage is going through the
you apply for the mortgage, the lender looks at your credit report and your
credit score. Then, shortly before closing, the lender surveys your credit
again. If there’s a substantial change — say you maxed out your credit cards to
buy furniture and appliances, or you got a loan to buy a car — the lender might
have to delay your mortgage closing. In drastic cases, you could torpedo your
mortgage and have to apply all over again.
By Robin Saks Frankel –
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