Scenario:
My husband and I have found a house and are looking for a mortgage between $1, 80,000 to $200,000. We are yet to close on the home. We are looking at options like 80/20 mortgage but are interested in any other program. Our annual salary is $60,000. We are paying school and auto loans totaling $650 a month. There's no other debt payment. We have cash reserves worth $15000. We don't want to put much cash down or pay huge closing costs (we'll be buying furniture, keep some cash as emergency fund etc). Our assets are worth $40,000. This includes stocks, bonds, mutual funds etc. If you'd like to know our scores, well they're 715 and 800. I'd like to know about the best mortgage programs for me. I'm a first time buyer and have been renting so far.
Solution:
Congratulations on your decision to buy a home!
I must say, your credit scores
are appreciable and you have good cash reserves as well. You can look out for 2 options – conforming mortgage loan and FHA programs. You can put less money down but you'll have to pay private mortgage insurance or PMI. Otherwise, you'll have to opt for an 80/20 mortgage loan. Such loans are no doubt quite expensive as compared to paying the PMI on a conventional loan.
However, in the current market scenario, 80/20 loans aren't that easy to obtain though you're in good financial and credit situation. Moreover, when you split 80/20 loans, the total payment can be quite higher compared to a 95% conforming loan with PMI. Also, if your property is situated in a deteriorating area, then it may be harder to get 100% financing in the form of 80/20 mortgage loan
.
Considering the fact that 100% financing is not easily available, I feel FHA mortgage loan is the right option for you. FHA lenders offer around 95%-97% financing which requires 3-5% money down. You can make use of gift money for the down payment and negotiate with the seller to pay the closing costs. Moreover, you don't have too much of debt payments; so hopefully your debt ratio would meet the standards set up by the FHA.
Now, when you take out an FHA loan, you'll have to finance 1.5% upfront Mortgage Insurance (MI) into your loan and recurring monthly MI. The best thing about FHA loans is, they're easy to qualify for and the lenders are more willing to work with you in case you fail to make payments in future. Also, in declining markets, FHA is the only option that won't become hard to manage unlike other mortgages.
Apart from FHA loans, you can look out for bond programs available in your area. These are programs offered by the State Housing Finance Authority and are meant specifically for first time buyers.
