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What’s the Deal with Down Payments?

While conventional wisdom dictates that 20% is the magic number required for a down payment on a home, that soaring figure may make the dream of homeownership seem completely unreachable for many young homebuyers. Between student loans and the rising cost of living in many areas, it’s no surprise that many millennials might struggle to save such a sum.

Thankfully, times have changed, and 20% is no longer the requisite amount for a down payment on a home. In fact, first-time homebuyers only need to worry about saving roughly 3% for a down payment!

In this post, we’ll discuss the three types of loans, benefits of each, and what you need to pay out of pocket for your down payment as well as how to get started.

Conventional Mortgage Loans:

What is a conventional mortgage loan? A conventional loan is not guaranteed or insured by the federal government. These loans are obtained through private institutions such as banks, credit unions, or private lenders.

Unbeknownst to many homebuyers, you can put a down payment on your dream home as low as 3%. This makes buying a home seem more achievable. A conventional loan conforms to a set of standards set by Fannie Mae and Freddie Mac. A new program was set into place in December 2014 allowing for smaller down payments. If you do choose to put down a smaller down payment, you may be required to take out private mortgage insurance and pay monthly premiums.

In order to put down a lower down payment, for example, 3%, you must have a credit score above 650. This may be a difficult feat for those who have loan debt or are starting to build credit. Another factor you have to consider is your debt-to-income ratio. This is the sum of your monthly obligations, like student loans and car payments compared to your monthly income. When taking out a conventional loan your debt-to-income ratio should be around 36% and no more than 43%.

Key Takeaways:

  • Not backed by the federal government
  • Down payments as low as 3%
  • No private mortgage insurance with a down payment of 20%
  • Helpful to have a credit score of 650 and above
  • Debt-to-income ratio of no more than 43%
FHA Loans:

What is an FHA Loan? An FHA loan is a type of government-backed mortgage insured by the Federal Housing Administration or FHA.

Unlike a conventional loan, to qualify for an FHA loan you can have a credit score lower than 650. Your down payment is dependent on your credit score and the higher your score, the less you have to put down when purchasing a home. Those with a credit score of 500-579 must pay at least 10% down. Those with a credit score of 580 and over can pay as low as 3.5% down. FHA loans may be ideal for those with low credit scores due to student loan debt or those who have not built up a high credit score.

The FHA is an insurer, not a lender. Because of this, homebuyers must get their home loans from FHA-approved lenders. Different lenders have different costs, so it’s advised that borrowers compare prices of different lenders. Two private mortgage insurances must be paid on all FHA loans, the upfront premium and the annual premium. The upfront premium is 1.75% of the loan amount. The annual premium is 0.45% to 1.05% of the loan amount depending on the length of the loan term.

Key Takeaways:

  • Backed by the government (FHA)
  • Down payments as low as 3.5%
  • Must pay two premiums
  • Credit score of 580 and above: down payments as low as 3.5%
  • Credit score of 500 and above: down payments of 10% or more
VA Loans:

What is a VA loan? A VA loan is a loan issued by approved lenders and guaranteed by the U.S. Department of Veteran Affairs or VA.

Veterans, active duty service members, National Guard members, and reservists must meet the requirements created by the VA in order to get approved for a VA loan. There may be no down payment required for VA loans depending on the qualified veteran, however, there is a funding fee that varies from 1.25% to 3.3% of the loan amount. Veterans who qualify for a VA loan can purchase a home worth up to $453,100 without putting any money down, although, the loan amount may be affected by the county because the value of the home depends partly on its location.

There is also no private mortgage insurance fee because VA loans are government backed. A great benefit from a VA loan is that the homebuyer can reuse their benefit. They do not have to be first-time homebuyers. If they are first-time homebuyers they can visit Veterans United to learn more about their options.

Key Takeaways:

  • Guaranteed by the government (VA)
  • May not require a down payment
  • Funding fees vary from 1.25% to 3.3% of the loan amount
  • Loan amount may be affected by the location of the home
  • No private mortgage insurance
Getting Started

Each loan comes with its own pros and cons, qualification requirements, and fees but there is another factor that comes into play when purchasing a home, the price. Whether you are thinking of buying a home now or in the future, it is important to know what price range is best, especially if you are a first-time homebuyer. To prepare for the purchase of a home, a pre-qualification is a quick first step in the process. Sean Hadley, Branch Manager at CrossCountry Mortgage, Inc., advises, “In this initial conversation, you should expect to get an understanding on how the process works and if there are any other financial steps you need to take to put you in the best position financially for your first purchase.” Pre-qualification is easy and free. Anyone in the Northeast Ohio area interested in learning about pre-qualification should visit Young Team Realtors’ preferred lender, CrossCountry Mortgage, Inc.

In conclusion, the three types of loans to consider when you are purchasing a home are conventional, FHA, and VA loans. The type of loan that is best for you varies depending on your credit score and how much you want to pay out-of-pocket. The best first step to take is to visit a mortgage lender, like CrossCountry Mortgage, Inc., to get an idea of the steps you should take when obtaining a loan. Once you conclude the best options for you, your dream home can become a reality.

4 Home Décor Tips for National Decorating Month

If you didn’t already know, April is National Decorating Month! A house isn’t a home without an atmosphere that suits your personality and taste. A great way to create that atmosphere is through home décor, which lets you express yourself and helps you to create a warm feeling in a space you call your own. Once you are done with your spring-cleaning, try out our decorating tips – one for each week!

1. Add Some Spring Essentials

Spring is the perfect time to liven up your home. Add some spring essentials you can easily pick up at your local home décor store or online. No need to make any major decorative changes to make your home feel festive and inviting. Try a lavender wreath on your front door to make a visitor’s entrance enchanting or simply add a floral throw pillow on your couch for a pop of color.

CountryLiving

 

2. Try Something Different

Some people play it safe when it comes to decorating their home. Try something different you wouldn’t normally do to freshen up your décor. You don’t have to make major renovations to change things up. Switch to a patterned headboard for the spring and summer months. Changing the centerpiece of your room to something fun and different may make all the difference. The cheerful pattern will help boost your mood and help get you into the playful warm-weather spirit.

Elle Decor

 

3. Remain Classic with Black and White

We don’t have to tell you that black and white is a classic combination, but there are endless options when it comes to revamping the black and white look. Enhance a room with a third pop of color to add dimension. Another fun way to express the black and white theme is by adding one or two black and white patterns across the space. You could add a striped black and white pillow to your bed to contrast black and white checkered curtains or some fun black and white patterned pillows such as those shown in the images below.

Elle Decor

 

Elle Decor

 

4. Old is New Again

Try your hand at reupholstering an antique store purchase. Take your new (to you) piece of furniture and add modern fabric to it. It will make the piece seem to come alive, while still having that vintage flair.

Elle Decor

 

All in all, it’s time to use these tips to liven up your home for spring, while catering to your taste and budget. You could simply add a floral pillow to liven up your living room or go on the hunt for antique furniture to revive. Whatever you choose to do to decorate your home we hope these tips are helpful in generating ideas to make your house a home, whether that be one you are selling or purchasing. Take advantage of National Decorating Month this April and go decorate!