In Claim My Keys

Lesson Seven – Which Loan Type Works Best for Me?

lesson (7)

 

Hey Hey Future Homeowner!

We’ve done a lot of work over the past few days, huh?  Well, I told you I would prepare you to Claim those Keys, so if nothing else… I’m honest, LOL!

Are you feeling like you’re on the right track to knowing what you need to do to prepare for your new home purchase? I hope so 😊

We’ve covered budgeting, how to be more in control of our money by creating strategic goals, how to calculate your debt-to-income ratios and more!

Today we’re going to go over each loan type and what they require to purchase a home.

Ready? Let’s go!

(NOTE:  We’ll discuss the credit score requirements for each loan type, keep in mind lenders look at your middle score, so if your scores are 597, 605, & 617, a lender will base your approval on the 605 credit score).

 

FHA

An FHA Loan is a mortgage that is insured by the government, the Federal Housing Administration, to be exact.

Credit Scores Needed:  500+; most lenders require a minimum of 620 (there are some lenders that will accept a 580 middle credit score).

Down Payment Requirements:  For credit scores between 500-579, FHA requires a 10% down payment.

For credit scores 580+, FHA requires a 3.5% down payment.

Debt-to-Income Ratio Requirements:  If your scores are under 620, you can go up to 31% for front ratios; if your scores are over 620 you can go up to 46.9% (see why soaring those credit scores are so important? 😊).  For back-end ratios, those under 620 can go up to 43%; over 620 you can go up to 56.9%.

Waiting Periods to Qualify for a Home Using FHA –

  • Discharged Chapter 7 Bankruptcy: Two years after discharge date
  • Discharged Chapter 13 Bankruptcy: There is no waiting period; usually has to go through manual underwriting if discharge date is less than two years old; you will need to have timely payments and have written approval from the courts.
  • Foreclosure, deed in lieu of foreclosure, and short sale: Three years from the date your name was removed from title

VA

To be eligible to take out a VA loan you must have a Certificate of Eligibility, or a DD214, which can be obtained through the VA. Your loan officer can order it online as well.

Credit scores needed:  The VA does not enforce credit score minimums, but the lender you obtain your loan from will.  On average, the score needed will be 620+

Down Payment Requirements:  0%!  There is something called a ‘funding fee’ however, that ranges from 1.5-3.3%.  This can be financed into your loan and varies per your military status and the price of the home you’ve selected.

Debt-to-Income Ratios:  The maximum back-end DTI for the VA loan is 41%.  If your DTI is above 41%, expect your loan to take a bit longer to close due to being reviewed more closely (no front-end for VA).

Those in the intensive will learn about how ‘compensating factors’ play a factor when you have lower scores or higher debt ratios that are outside of the approval guidelines during the Live Lesson.

Waiting Periods to Qualify for a Home Using VA –

  • Discharged Chapter 7 Bankruptcy: Two years from discharge date; no late payments within those two years
  • Discharged Chapter 13 Bankruptcy: There is no waiting period; usually has to go through manual underwriting if discharge date is less than two years old; you will need to have timely payments and have written approval from the courts.
  • Foreclosure, deed in lieu of foreclosure, and short sale: Three years
  • Loan Modification: One year

 

USDA

The USDA Rural Development Housing Program insures USDA Loans for homebuyers in eligible rural AND suburban areas.

Credit Score Requirements:  640+ (most lenders want to see 650+)

Down payment Requirements:  0%, USDA offers 100% financing!  Home must be in a USDA qualifying area:  https://www.rd.usda.gov/browse-state

Debt-to-Income Ratios:  USDA does not consider front-end ratios, a maximum back-end ratio of 41% is allowed.

Waiting Periods to Qualify for a Home Using USDA Loan

  • Discharged Chapter 7 & Chapter 13 Bankruptcy: Three years from discharge date
  • Foreclosure: Three years
  • Deed in lieu of foreclosure & short sale: At the discretion of the lender.  They decide if it should be 1 year or three years, as a regular foreclosure. For more favorable decisions, have scores over 640.

Conventional Loan

Conventional Loans are the only loan type that we’ll discuss that is not insured by the government.  For this reason, the guidelines are stricter.

The companies that set the guidelines for conventional financing are Fannie Mae and Freddie Mac.

Credit Scores Needed:  Typically 640+; some lenders will have programs with lowers scores, however, please plan on having all other areas of your finances on point to qualify.  My suggestion is to be as close to 650-680 as possible, I’ve found the approval process to go way smoother.

Down Payment Requirements:  New buyers can see if they qualify for the 3% down program.  Most of my buyers haven’t, but do qualify for the 5% down program.

Debt-to-Income Ratios: On average, the most a lender will want your debt ratios to be is 45%.

Waiting Periods to Qualify for a Home Using Conventional Loan

  • Discharged Chapter 7 Bankruptcy: Four years
  • Discharged Chapter 13 Bankruptcy: Two years
  • Deed in lieu or short sale: Four years
  • Foreclosure: Seven years

Assignment – Pick Your Loan Type

lesson 1 (7)

 

Remember our goal setting exercise? Where I asked you to focus on ONE goal at a time?  Keep this principle in mind with this exercise.  Many future homeowners will focus on ‘getting qualified’ without stopping to think what they should be getting qualified for!  Don’t do that.

Selecting the loan type that you feel would work for you, OR that you will easily get approved for is key to Claiming Your Keys.  You know why?

Because now you have targets to hit.  If you have filed for bankruptcy 2 years ago and you know you’re NOT a veteran, then you know you can’t go conventional, and that FHA is feasible now and if you wait a year, you can possibly go USDA.  See how much that helps???

Now when you start googling other information, you’ll know to google ‘FHA approval guidelines’, or ‘USDA approval guidelines’ versus just a generic ‘what do I need to do to be approved for a home?’, the latter is whack.  I’ve helped you out of whack-strocity; don’t you just love me 😊  LOL!!!

So, review the loan types that we’ve discussed, and select the one that works best for you.  It is okay to select a ‘2nd choice’ option as well.

Then, post your selection(s) to the group!  Intensive Students, there is space for you to do this in your workbooks.

Tomorrow, we’ll review some case studies to put this all together 😊

Your Partner in Prosperity,

Netiva

P.S.  Don’t forget to Share! Share! Share! –> bit.lyClaimMyKeys/

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