Year: 2017
So, you’re ready to buy a house, but you don’t know what type of loan you need. The type of loan you end up choosing shapes the future of your homeownership. Here’s a rundown of loan programs that are the most common:
Conventional Loans
Conventional loans are the most popular and economical loans available. A conventional loan is a mortgage that isn’t guaranteed or insured by any government agency. The loan typically includes fixed terms and rates. Borrowers typically need a pretty good credit score to qualify for a conventional loan along with a minimum of 3% down payment. The maximum loan amount for a conventional loan is $424,100. If the homeowner makes a down payment of less than 20% on the home, then lenders will require private mortgage insurance (PMI). PMI is configured by the lender and protects them if you stop making payments at any time. Once the loan-to-value ratio reaches 80% on a conventional loan, PMI is no longer required.
FHA Loans
An FHA loan is a mortgage insured by the Federal Housing Administration. These loans are popular thanks to high DTI (debt-to-income) ratio maximums, and many lenders approve borrowers with credit scores as low as 580. FHA loans typically require a down payment of at least 3.5% and offer low rates that usually sit about .25% lower than conventional loan rates. The national maximum loan amount for an FHA loan is $294,515 but varies by county/parish. In high-cost areas, county-level loan limits can be as high as $679,650. Lenders require two mortgage insurance premiums for FHA loans: The upfront premium is 1.75% of the loan amount, and the annual premium varies based on the length of the loan. The monthly mortgage premium is .85% of the base loan amount for the remainder of the loan.
USDA Rural Housing/Rural Development (RD) Loans
USDA loans are issued through the government-funded USDA loan program. The government designated these loans for homes in rural areas. The program focuses on improving the economy and quality of life in rural America. USDA loans typically offer lower rates than conventional loans and hold several similarities to FHA loans. The income limit for USDA loan recipients is $78,200 for a one to four person home and $103,200 for a household of five or more. Mortgage insurance for a USDA loan requires a 1% upfront fee of the loan amount, and a monthly mortgage insurance fee equal to 0.35% of the loan balance. As with the loan limits, income limits will also vary based on parish/county.
Veterans Affairs (VA) Loans
VA loans have helped more than 21 million veterans, service members, and surviving spouses achieve the dream of home ownership. This benefit – most praised by home buyers for offering $0 down, low rates, and removing the added cost of mortgage insurance – is made possible by the U.S. Department of Veterans Affairs guaranteeing a portion of each loan in case of default. Veterans who are eligible for a VA loan have what is referred to as VA loan entitlement, which is a specific amount that the Department of Veterans Affairs promises to guarantee. This entitlement is what gives lenders the confidence to extend VA loan financing with exceptional rates and terms. However, to be eligible for the VA loan, potential home buyers must first meet the basic service requirements.
The type of home, its location, and your situation are all factors that determine the type of loan that is right for you. If you need guidance, Assurance Financial’s loan officers are home loan experts who can help. Contact us today!
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Building credit takes careful planning and due diligence to avoid unnecessary mistakes, like missed payments. Though it requires careful attention, it is not impossible. If your credit isn’t where you want it to be, you should evaluate your current status and develop a game plan if you plan on purchasing a home in the future (and even if you’re not, it’s good to know how to build your credit so that it works for you!)
Credit Cards
One of the easiest ways to build credit is to use your credit card regularly and responsibly. Making your monthly payments on time and in full is positively reflected in your credit score. Every payment you make is reported to credit bureaus, regardless of whether you’ve made it on time or not. Paying each bill helps you build a positive credit profile, demonstrates that you’re capable of meeting a creditor’s conditions, and usually comes with some great perks! Though credit cards offer regular users rewards, like cash back, travel credits, and reward cards based on the user’s spending habits. They also give you the option to make large purchases upfront, which commonly leads many users to rack up debt fast. Credit card holders should be mindful of deadlines and late payment fees to avoid high spending.
Car Loans & Buying Pre-Owned
Introducing a car loan to your credit line helps diversify your credit profile and gives you the opportunity to boost your credit score.
Making each payment on time helps you build credit, however being late on just one payment can potentially negatively impact your credit score. Steady, reliable payments paint you as more trustworthy to lenders. Before you drive off the lot in a brand-new car, consider purchasing a pre-owned vehicle instead. Research shows cars depreciate by about 60% in just five years. In most cases, dealers offer extended warranties and special financing with the purchase of a pre-owned car.
Student Loans
Student loans are installment loans, which are a bit different than revolving credit, like credit cards.
Lenders offer these types of loans to users upfront, all at once, then require them to pay the amount back over a set period through regular installments. Car, mortgage, and home equity loans all fall into this category, but student loans are typically the first installment loans most people encounter.
Starting off your credit history with on-time student loan payments reflects positively on your credit score. Student loan borrowers can use their loans as a base to build up a good credit profile. If you do have student loans, be sure to always pay on time, and stick to a payment fee you can afford.
Mortgage Loans
Buying a home is likely the biggest and most important purchase most people make in their lives.
A mortgage loan helps people build credit, as long as they make their payments routinely and on-time. Despite being the biggest debt, most people owe; mortgage loans are considered good debt. Your home is a physical asset backing the loan. If you miss a payment, the lender can repossess the home, meaning a mortgage is a relatively safe investment for them. Paying your mortgage will boost your score and show creditors you’re a trustworthy borrower. Applying for a mortgage will initially lower your credit score. The application will trigger a hard credit inquiry, which only temporarily lowers your credit score for about 45-days.
Slowly and steadily, you can build up your credit. It takes time, but it is not completely impossible. If you’re looking to purchase a home in the future, create a game plan and stick to it. Showing consistency and responsibility is a factor when Loan Officers consider when determining a home mortgage loan. If you need more information, contact one of Assurance Financials’ home loan experts today!
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You may be wondering what creditors take into account when determining your credit score. There are five factors involved in calculating your credit score, each varying in importance and value to credit scoring models. Here are the five more common criteria of what determines your credit score:
1. Payment History (35%)
The most important factor in determining your credit score is whether you pay your bills on time. Credit scoring models examine all the credit you’ve already been extended, including credit cards, auto loans, installment loans and any other line of credit. Any late or missed payments are noted and may negatively impact your credit score.
2. Debt/Amounts Owed (30%)
The second most important determining factor is the balance-to-limit ratio on your credit cards. Models will examine how much of the total credit line you’re using on all of your credit cards. In general, you should try to keep your utilization rate below 30% to avoid lowering your credit score. Keeping your balance below 108 will help you achieve a higher score.
3. Age of Credit History (15%)
The credit score calculation also reviews the age of every account you hold. Scoring models favor users who show they’ve been able to handle several credit accounts over time without penalties, late fees or closures.
4. New Credit/Inquiries (10%)
Your credit score will also reflect how much credit you’ve received or applied for recently. Any credit you’ve applied for within the past three to six months or new inquiries from creditors are recorded and used during calculations. The scoring model doesn’t consider requests a creditor has made to review your credit file or score to build a preapproved credit offer. Nor does it account for any personal requests you’ve made for a copy of your credit history.
5. A mix of Accounts/Types of Credit (10%)
Creditors like to see you’ve been able to balance multiple tradelines of different types. The scoring algorithm examines the types of credit accounts you have, including revolving debt and installment loans.
The above are the most common factors determining your Credit Score. Be aware that your Credit Score is one of a number factors we consider when determining your home mortgage loan. The best way to know if you qualify, and for how much, would be to discuss your situation with one of our home loan experts. Contact an Assurance Financial Loan Officer now!
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Few things are more important than your credit history when it comes time to purchase your new home. Your credit score isn’t just a number; it paints a full financial picture. We’ve mapped out a guide to understanding your credit during the mortgage process and how to start planning for successful homeownership today.
Credit scores fall within a range from 300 to 900. Your credit score directly influences which programs you qualify for and subsequent loan rates. Individuals with higher scores face fewer limits during the mortgage process and sometimes the cost of private mortgage insurance.
Scores of 780 or higher are desirable to most creditors and receive the best possible rates. Borrowers with scores between 720 and 780 also receive lower interest rates and are considered excellent candidates in the eyes of lenders. Scores within the 660 and 719 range are respectable as well and qualify for most loans; however, these individuals face higher rates.
Any score below 660 will limit you to a select few programs and while offering higher consumer rates. People with a credit score of 580 or below risk the chance of not being approved for a loan. If they are approved, they’ll most likely encounter extreme rates.
Though your credit score is not the only determining factor, a Loan Office at Assurance Financial is ready to help work with you to determine which loans are available. Whether you are a First Time Home Buyer, a Veteran or looking for a USDA Rural Loan, we’re here to help. Find a loan officer near you and see how our home loan experts can help you today!
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Buying a home is a big deal, and most likely the most expensive purchase you’ll make in your lifetime. Thankfully, your purchase comes with a few perks. There are several tax deductions available when buying a home that can put a good chunk of cash back in your pocket. Here are a few tax advantages that make your home a great investment.
Mortgage Tax Deduction Benefits when Buying a Home
Tax codes give homeowners the choice to deduct the mortgage interest from their tax obligations. This can equal to a huge deduction for many owners since interest payments make up a large amount of your mortgage payment.
Also, when buying a home you can begin claiming points on your loan the first year. These points are called origination fees and can be claimed even if the seller pays for them. Origination fees of one percent, or more, are common and can add up to big savings for buyers.
Property tax is also deductible. Real estate property taxes paid on your home are fully deductible for income tax purposes.
Tax Deduction on Home Equity Lines
You can also deduct the interest paid on a home equity loan. This gives you the chance to shift your credit card debts to your home equity loan. You’ll pay a much lower interest rate than those offered by credit card companies and get a deduction on the interest as well.
Home-office deductions
If you are buying a home and self-employed or do freelance work in a home office, deductions can save you money on your taxes. The IRS allows you to write off a portion of your regular expenses that you spend to conduct business at home. This includes electricity, water, Internet, and other costs. When calculating your home office deduction, measure what percentage of your living space your offices takes up and how much you spend each year.