Now that you're ready to purchase a home you need to know which loan program will work best for you. Your lender will assist you in choosing the best rate, program and payment options based on your debt to income ratios and credit history but here are a few common terms to help familiarize you with the process.
Conventional Mortgage: This is a mortgage that is typically used when a borrower has 20% of the purchase price of the home to use as a down payment. Putting 20% down will eliminate PMI (Private Mortgage Insurance) and save you money on your monthly payment. However, most borrowers do not have 20% and there are conventional loan programs that will allow 10% and sometimes 5% to be used as a down payment but it will not eliminate PMI unless it is 20%. Conventional mortgages can be a fixed rate loan at 15 to 30 years or an adjustable rate loan.
PMI is insurance that is used to protect the lender and offset losses in the case where a borrower is not able to repay the loan and the lender is not able to recover its costs after foreclosure and sale of the mortgaged property
FHA Mortgage: An FHA mortgage allows for the refinance or purchase of a home with a low down payment of 3.5%. These loans are great for the first-time homebuyer or those homebuyers who may not have 5% to 20% to use as a down payment. The rates are also typically low and competitive.
The two mortgages above are the most commonly used mortgages today, however, your lender will be able to discuss all of your options with you, explain your payment and what it includes, and help you determine how much you can afford based on not just your credit history but your monthly expenses as well.
For more information on obtaining your next mortgage contact
at South State Bank