One topic homebuyers ask me about a lot is their financing options. With that in mind, I have brought in Abel Tejeda, our preferred lender from American Mortgage Group, to shed some light on which loan programs are available to you and offer a few financing tips.
Whichever loan program is right for you depends on your personal circumstances, but the most popular loans for first-time homebuyers, Abel says, are conventional loans and FHA loans. Though these loan programs are completely different, your ability to qualify for either depends on your income, your credit, and how much money you have for a down payment.
One question I get a lot in particular is whether you can buy a property after a short sale or a foreclosure. According to Abel, you absolutely can, but you have to wait at least three years to do so. To buy a home after filing for bankruptcy, the waiting period is at least two years. If you file for chapter 13 bankruptcy, you only have to wait one year.
There are a lot of misconceptions out there regarding how much you have to put down to buy a home. The good news is you don’t have to put down 20%. Most people who opt for an FHA loan only pay 3.5% down. If you go with a conventional loan, you can put as little as 3% down. If you want to avoid paying private mortgage insurance, however, you must put at least 20% down—this is where the assumption that you must put down 20% comes from.
Another financing option you can use if you are a veteran is a VA loan, which requires no money down and no mortgage insurance. If you have a 100% disability rating, you also get a break on your property taxes. Here in San Diego, this is a huge benefit. If you have at least a 20% service-related disability, your funding fee for a VA loan gets waived.
If you are wondering how soon you can refinance or how many payments you must make before you can lower your monthly payment, the answer depends on which loan you bought your home with. If you used an FHA loan, you can greatly reduce your mortgage insurance as soon as your property appreciates. Depending on how much you’re paying for mortgage insurance, you can save as much as $400 per month.
Saving is one reason why people refinance. Another reason is once your property appreciates, you can tap into its equity through refinancing or getting a home equity line of credit. This can help you pay off debt or make some home improvements. Refinancing also allows you to change your mortgage from an adjustable rate to a fixed rate.
The first step to buying a home is getting pre-qualified, so if you are ready to get started on your home buying journey, you should consider meeting with Abel so he can review your financial situation. If you don’t qualify, he and his team can advise you on what to do so you can qualify in the near future.
The minimum credit score you need to qualify for a VA or FHA loan is 580. For a conventional loan, the minimum qualifying score is generally 620. If your credit isn’t where it needs to be, Abel and his team can also counsel you on how to improve it or refer you to one of the credit repair companies.
Remember, just because you have bad credit or any collections or judgments does not mean you can’t buy a home.
If you have any other financing questions for Abel, the best way to reach him is by giving him a call at (619) 948-2996.
As always, if you have any real estate questions for me or you’re thinking of buying or selling a home soon in our San Diego area, you can contact me by phone or email. I look forward to speaking with you soon.