FHA Loans. FHA mortgage loans are insured, but not originated, by the federal government – specifically, the Federal Housing Administration. Known as 203b mortgage loans, they require just 3.5% down. They can be used on one- to four-family homes and typically carry lower interest rates than conventional mortgage loans, though your exact rate will depend on your creditworthiness and other factors. Underwriting standards are also much looser than on conventional mortgages – you can qualify with a credit score below 600.
Paying off credit card debt isn’t always straightforward, though. Focus on your highest-interest debt first (debt avalanche method), even if that means putting as little as $25 or $50 extra toward your payment each month. As your high-interest debt load shrinks, you can move onto lower-interest credit card debt, and you’ll likely accelerate your progress toward a $0 balance. With lower (or no) interest charges eating into your spending and saving power, you can then direct your dollars toward your down payment fund.
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How you progress through a home buying transaction can vary somewhat depending on the real estate laws and customs where you live, but many steps are standard. You'll feel more confident about your home-buying journey when you understand the chain of events and what's required of you, as well as every other person who's involved in the transaction.
You won't have to pay PMI: By making a larger down payment, you can also avoid paying private mortgage insurance (PMI). With a smaller down payment -- say 3.5% -- your mortgage lender will want some financial insurance that you'll pay the larger loan off on time, and in full. That increases the monthly mortgage payments you'll make if you make a smaller down payment - and that's a problem a homebuyer who makes a 20% down payment doesn't have.
The link between home down payments and interest rate aids lenders in calculating what mortgage industry professionals call the "loan-to-value" (LTV) ratio of the home. Loan-to-value, along with the debt-to-income ratio (i.e., the amount of money you owe weighed against the amount of income you earn) and your credit score are the primary factors a mortgage lender considers when making a home loan.
The loan-to-value ratio is basically defined as the percentage of the home's value you owe after making a down payment on a new home. It's calculated by taking the mortgage loan amount and dividing it by the appraised value of the house you're buying. So if you're buying a house that costs $100,000, you put down $10,000 and you're borrowing $90,000, your LTV ratio is 90 percent.
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For most buyers, this is when the butterflies really show up. Once you’ve found a home you want your agent will work with you to craft an offer. Remember, the listing price is only a starting point. Your agent will understand the market and help guide you to make the most attractive offer, whether it’s below, at or above listing price. Are there any contingencies to your offer? Will you require an inspection? These are all things your agent will help you with. Once you’ve submitted the offer you get to wait. It will seem interminable. You may get neither a simple yes or no but a counteroffer to consider. It can be something of a dance. If you get a solid “no,” it’s back to Step 5. If you get to a “yes,” celebrate!
The information set forth on this site is based upon information which we consider reliable, but because it has been supplied by third parties to our franchisees (who in turn supplied it to us), we can not represent that it is accurate or complete, and it should not be relied upon as such. The offerings are subject to errors, omissions, changes, including price, or withdrawal without notice. All dimensions are approximate and have not been verified by the selling party and can not be verified by Sotheby's International Realty Affiliates LLC. It is recommended that you hire a professional in the business of determining dimensions, such as an appraiser, architect or civil engineer, to determine such information.
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