The recent downturn in the real estate market combined with a sluggish economy and high unemployment might cause a potential home buyer to shy away from taking the leap to home ownership. Nightly newscasts are ripe with horror stories about the difficulty of obtaining credit, and it is accurate to say that banks have indeed tightened their requirements. While it is true that the market for loans is not as wide open as it was a few years ago, home loans are most definitely available, and they are still offered with a wide variety of features.
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The first step is to speak with a professional about the types of loans available. Everyone's situation is different, and a professional can help a potential buyer navigate the options to find the best choice. Some variables include the size of the down payment, the length of the loan, and the interest rate. These are basic considerations that should be discussed and fully understood.
Certainly the size of the down payment is a primary concern. It can be difficult to come up with twenty percent, and more expensive homes all but rule out this option for plenty of buyers. The good news is there are still ways to purchase a property with less than twenty percent down. In fact far less is needed with the right mortgage.
The Federal Housing Administration, also known as FHA, is still offering loans with as little as 3.5 percent up front. This allows for lots of people to be in the market for homes who would otherwise be forced to continue to rent with little alternative. Low money down does come with a few caveats however, and no one should sign without knowing about them.
With FHA, a broker will likely want to discuss mortgage payment expense to effective income and total fixed payment to effective income. These are ratios used to determine whether or not a potential buyer is capable of affording a given property. They take into account things like total house payment, total income, revolving debt, and debt to income ratio. Buyers either qualify or they do not. Exceptions cannot be made.
Remember too that an FHA loan, while requiring less money down, can actually be more expensive in the long run. Now this is not necessarily a bad thing, but it should be considered. One of the reasons for this is something called PMI. There are new regulations in place that effectively extend the time FHA borrowers must pay mortgage insurance. Previously, this payment was extended to 5 years. Today, the loan to value ratio has changed, and PMI is not automatically terminated after 5 years. The numbers vary with the terms of the loan.
Of course FHA is only one of many ways a potential buyer can go. Those with more available up-front cash are not saddled with the strict requirements of an FHA loan and may actually be able to afford a more expensive home as a result. VA loans, RHA programs, Conforming and Jumbo loans are just a few of the many options available to the consumer.
Home loans are most definitely available, and while the process for qualification may be a bit more stringent today than in years past, a number of options continue to be available. A wise consumer will most definitely consult with a professional mortgage broker to discuss which loan type is best suited for their situation. The market is different today, but it remains, and those with even a little cash can still make the dream of owning their own home a reality.
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