Do You Speak Home Loan?

What do you know about home loans? For most of us, the honest answer would be – not much. I’ll have to admit that I am by no means a mortgage specialist, I have my connections but I wish I knew more about their products. I am learning though, as I believe it’s utterly important for me to be able help my clients when it comes to financing questions too. I became painfully aware of this with a client that had her pre-approval from a lender I really did not know that well. I probably should have asked more questions as financing is a crucial part of purchasing a home and some loan products can make it a bit more complicated than others.

Most of us save for down payment, buy a home and then live in it. Recently with the interest rates hitting an all-time low, many have refinanced their home, but that’s about it. And if you did end up moving to a bigger or smaller home, your new down payment came from the equity your current home had built. So, no need to know that much about loan products.

When it comes to first time home buyers in an era where home prices are soaring this can get a little bit trickier. See, that traditional 20% down payment for a conventional home loan can end up being quite a bit of money, more money than one has, or, at least I don’t have an extra 100k to 200k lying around. Maybe you do.

This is when we enter the world of more complicated lending. For most realtors, the letter combination FHA makes us cringe, and it’s not just us. I have not met one mortgage broker that would steer their clients toward an FHA loan, as there are some many other products out there too. Did you know you could get a conventional loan for as little as 3% down? That shrinks your down payment to something way more comprehendible.  Yes, it will require a mortgage insurance to protect the lenders investment - no, not yours but the lenders – but unlike FHA loans this is not for forever, this is only until you have paid, or the home value is high enough for your financed amount to be equal or less than 80% of the value of your home. For an FHA loan, your mortgage insurance will go on for the term of the loan, unless you re-finance, and now that the interest rates are slowly creeping their way up you might not want to have to do that. Yes, the rates are still relatively low, but they are no longer at 3.25%, and we do not know where they will be in 5 years.

FHA used to be the only loan product where you could be gifted your down payment. That is no longer true, and there are other products where you can receive a gift for your down payment, and if you have someone whom is willing to give you a gift, you now have options.

Most realtors have a list of mortgage people they work with, and many times it might be a good idea to talk to several to find out what would be the best option for your situation. You may be a millionaire without a job, or the most frugal person on earth with a job that you’ve had for past fifteen years, and you’ve never missed a day but it just does not pay that much. There are loan products out there for both of you. Oh, and if you have served our country you may have VA benefits, and even though the process is a bit more complicated and slower than some others, their products can be pretty divine.

Ask questions, meet with lenders and compare loan products!