SO YOU’VE MADE THE DECISION THAT IT’S TIME TO ENTER THE HOME BUYING PROCESS. CONGRATS!! CHANCES ARE, UNLESS YOU’VE BEEN LEFT AN INHERITANCE OR YOU’RE A SUPERSTAR WHEN IT COMES TO SAVING MONEY, YOU’LL NEED FINANCING. IT’S IMPORTANT TO NOTE RIGHT OFF THE BAT THAT MORTGAGES ARE SORTED INTO SEVERAL BASIC CATEGORIES.
For simplicity’s sake, we’ll say that there are four main categories:
From there, programs are subdivided into scores, even hundreds of subcategories to allow for just about any reasonable situation that you can think of. But for today, we’re going to cover just one.
MORTGAGE PROGRAM #1: THE CONVENTIONAL MORTGAGE
A Conventional Mortgage is very broadly defined as a mortgage that possesses the following qualities:
- Down payment requirements that go as low as 1.0% ** Ask us! **
- If you put less than 20% down, mortgage insurance may be required but it is privatized. In other words, the federal government is not necessarily on the hook if you default. A third party takes on the risk in the form of “Private Mortgage Insurance” (PMI)** Ask us about awesome options to significantly lessen the impact of PMI and even eliminate monthly payments **
- Generally requires that you must wait 7 years from the date of a foreclosure
- Generally requires that you must wait 4 years from the date of a Short Sale. BUT in some cases, you may not have to wait at all!
- Generally requires credit scores greater than or equal to 620
- Generally limits the mortgage payment plus your current monthly consumer debt to 50% or less of your gross monthly income
- Generally a bit more stringent with regard to delinquencies
- Generally less “Red Tape”
- Can pay taxes and insurance separately if desired
- PMI may be eliminated upon equity in the home reaching 20%
- Can break up the pay-back schedule into virtually any increment desired
Additionally, some of the subcategories of the conventional mortgage are as follows:
Adjustable rate options
- First and second mortgage combinations
- Remodel solutions
- PMI Reduction
- “Underwater” value
- Manufactured homes
While these parameters of course don’t cover every aspect of a conventional mortgage, they provide a good start in understanding some of the basic guidelines. Next time, we’ll cover the very popular and flexible Government Mortgage category.