Homeownership has long defined the American Dream.
As we celebrate our independence as a country this Fourth of July, we recognize that it has become more challenging for many, particularly young people and first-time buyers, to “buy in” to the American Dream of homeownership. Tighter lending restrictions and a difficult economy have presented challenges, especially here in our nation’s capital where home prices are significantly higher than in other parts of the United States.
But fear not, American ingenuity will always triumph and the news isn’t all bad.
There are several loan programs available that will help on your quest to homeownership.
CURRENT LOAN PROGRAMS
VA LOANS – Minimum 0% Downpayment
The best opportunity is for our veterans. Our government thanks members of our armed forces by offering them “VA loans.” VA loans have become ever more popular with little or no down payment. Although once regarded negatively (undeservedly) in the go-go seller’s market, we have more and more contracts than ever with VA financing and it is now one of the hottest ways to buy a home.
Brian Bonnet of Atlantic Coast Mortgage tells The Goodhart Group, “As a mortgage professional, I would rather originate a VA loan than any other type of loan. VA loans are generally the easiest loans to approve from an underwriting standpoint. The VA guidelines are significantly more lenient and while the appraisal process is slightly different, our experience with VA appraisals is largely positive.”
FHA LOANS – Minimum 3.5% Downpayment
FHA loans are another great program available to purchasers who are looking to buy a property. Under this program purchasers can put down as little as 3.5% of the sales price in a down payment for a loan up to $625,500.
CONVENTIONAL LOANS – Minimum 10% Downpayment
Lastly, buyers should still consider conventional financing, the most popular way to purchase a home. Typically these loans require a 10 or 20% down payment. The benefit of a conventional loan is you’ll typically pay less mortgage insurance on your loan, which will lower your monthly payment by a few hundred dollars.
Don’t forget, the higher your downpayment, the lower your monthly mortgage will be and the higher your equity will be in the home you own. So, if you can afford to make a higher down payment – go for it!
How you structure your loan can also make a difference.
STRUCTURING YOUR LOAN
ADJUSTABLE RATE MORTGAGES v. FIXED RATE MORTGAGES
Another option that is regaining popularity is a mortgage with an Adjustable Rate Mortgage or “ARM.” With a traditional fixed rate mortgage, you “lock-in” your interest rate for the life of the loan, typically either 15 years or 30 years. You are guaranteed that interest rate from now until the loan is paid off.
However, with an adjustable rate mortgage, you can get a lower interest rate than you would with a fixed rate. The catch is that after a certain time, 5, 7, 10 or 15 years, your rate will adjust. After that time, your rate will either increase or decrease by a certain percentage (usually 1%) depending on current interest rates. If you are planning on being in the property a short time, an adjustable rate mortgage can be a great idea.
THE BOTTOM LINE
Over the holiday as you are watching the fireworks or grilling in your backyard with family and friends, just remember…
…the American Dream is still possible.
Even in these tough times we can still achieve the goals that our parents and grandparents had for us. All it takes is a little research, smart financing, finding the program that is right for you, and of course – a great Realtor! Happy 4th from The Goodhart Group!