Just wanted to go over some basic mortgage programs with you today, some mortgage programs every home buyer should understand, understand that’s available to them so they completely understand their options. Some things, some of these you may have heard of, some of these you may not have. Let’s start right at the top. I think the most common throughout the country is our FHA or Federal Housing Administration loan program.
It allows for a minimum of 3.5% down. You’re looking at about $3,500 down for every $100,000 you spend. That’s the easiest way to look at it. It allows for a credit score as low as 580. If you’re in the 600s or 700s, you’re in great shape, but you can purchase a home with a credit score as low as 580. Some of the benefits of having a 600+ credit score is the rates start to become a little bit better for you, the mortgage interest rate becomes a little bit better for you. Mass Housing. Here in Massachusetts, in Boston, you can also purchase a home with 3% down. Mass Housing does require you to go through a firs time home buyer’s program where FHA’s does not. Mass Housing does have a few income restrictions. You can only make so much money before you are no longer qualified to use the Mass Housing program.
Again, 3% down so about $3,000 for every $100,000 you spend on your home. $300,000 home, roughly $9,000 down payment. Conventional mortgages. If I can backup just a second, one of the downsides to the FHA program is there is a fee that you pay for using such a low down payment program. It’s called primary mortgage insurance. It’s something that you pay for the use of this program. It’s a fee that you pay every month, roughly. It can range from $100 to $400 a month depending on the size of your mortgage. In some cases, it may make a lot of sense for you to forego the FHA and put a little bit more down, go 5% down. You can do a conventional mortgage program with 5% down; owner-occupied conventional program with 5% down. As long as you plan to occupy the residence you can usually get in.
The rates may be a little bit higher than the FHA or Mass Housing, but again, if you were making a little bit too much money for the Mass Housing and you don’t like the idea of the PMI or primary mortgage insurance on the FHA, conventional may be the way to go. Again, your rates can be a little bit higher, but the total mortgage itself may be a little bit lower after you reduce or pull out the primary mortgage insurance payment. Conventional, you can also go conventional and purchase an investment property. Investment property, you would probably need 20% to 25% down depending on which mortgage lender you received.
Conventional programs go anywhere from a 5% owner-occupant to a 25% investment property. The VA loan programs. If you are a veteran, and I believe if you are a family member of a veteran, you can also use the VA program which requires nothing down at closing. You can actually purchase a home with zero down for your veteran status. You really want to check the VA housing website. I would google, I don’t know what the exact URL is, but I would google Veterans Administration Housing Loan Programs or Mortgage programs. I’m pretty sure the website would pop right up. There’s a great opportunity for you, yourself, a family member, or if someone of your friends is a veteran, definitely inform them about this program.
Last but not least is your 203K. A 203K allows you to buy property that needs a little work. You purchase a property, looking at a property, and let’s say you’re going FHA. You look at that property and if there is a missing stove, if there is peeling paint, if there are holes in the wall, FHA is not going to approve that loan. They want the house to be move-in ready, immediately ready to occupy. 203K steps in and says, “This house is right on the verge of being a good property but it needs a little work. It needs a new kitchen. It needs a new bathroom. It needs paint. It might need a roof.” The 203K allows you to purchase the property and also get rehab funds at the same time.
Let’s say, for instance, you’re purchasing a property at $200,000. The purchase price will be lent to you and then additional $30,000 to fix up your kitchen, your bathroom, and some other things that are needed to be done. You really want to, if you’re going to go through 203K program, you want to make sure that your lender has experience with the 203K loan. You do have to get a contractor involved. That contractor would need to submit bids to make sure that the money is being appropriated correctly. There’s a lot more involvement when they’re going to be giving you rehab funds as well.
FHA, Mass Housing, conventional, VA, and the 203K loan are your basic mortgage program.