Why is it important to get pre-qualified?

What is a FHA loan?

FHA stand for Federal Housing Administration, this is a government organization which insures the lender should the buyer default on a mortgage. FHA does not make loans, they simply insure them. Two of the main advantages of a FHA loan is that it requires less down payment than a conventional loan, and is easier to qualify for. FHA is very popular because the debt-to-income is less restricted than conventional mortgage. As of 2008 FHA will insure up to $341,250. FHA also has a 203(k) program, which allows the homebuyer to rehab a property. FHA allows the seller to pay up to 6% in buyers closing costs, discount points and pre-paids.. Or you can borrow your down payment provided you have a collateral item you are borrowing against, however you must qualify for the mortgage with the extra payment.

What is a VA loan?

VA stand for Veterans Administration and is a type of loan specifically for military personnel. The main advantage to a VA loan is there is not down payment required. The VA guarantees the loans to meet the housing needs of veterans who have served their country. There is no down payment required and no private mortgage insurance, however; there is a variable funding fee which can be financed with the mortgage. VA sets no limits on the amount one can borrow but does limit the amount it will guarantee. There are no VA loans for investment purposes but the VA will lend for multi-unit (up to a four-unit) if the veteran intends on living in one of the units.

What is a conventional loan?

A Conventional loan is a loan that is not insured by or guaranteed by any government agency. A traditional conventional loan is usually amortized over 30 years, meaning the monthly payments will payoff the entire principle and interest through the life of the loan. A conventional loan usually requires more down payment than an FHA or VA loan. Traditionally conventional loans required 20% down payment, however; today some lenders will accept as little as 5% down. The 15-year mortgage costs about one third less in interest than a 30-year mortgage and is usually at a lower interest rate because the lender is taking less risk.

What is an ARM?

An ARM is an Adjustable Rate Mortgage meaning the rate is not fixed throughout the life of the loan. This allows the lender to adjust the rate in relation to the economy. One of the advantages to an ARM is the interest rate usually starts very small and gradually increases in later years. Most ARMS will have a rate cap indicating how high the interest rate can go.

Bond Money

Bond money is subject to availability and is on a first come first serve basis. Bond money is usually for first time homebuyers or someone who has not owned a home in the past three years. Usually the interest rate is reduced from the current market rate. There are income restrictions with this type of loan. Some of the bond issues come with forms of down payment assistance.