Profile picture for user32634333

What type of mortgage should I apply for?

I'm hoping to become a first time home owner. My credit score is around 768 and have credit card debt of $9k. I can put 10% down for 300k mortgage, but I would like to keep my down and monthly payment as low as possible. What kind of loan should I apply for as the first time home buyer?
  • December 06 2013 - Torrance
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Answers (19)

Profile picture for blue screen exile
You will note that most of the lenders have assumed that you will want a 30 yr fixed rate fully amortized loan, at least for the primary loan.  Obviously, a 15 yr fixed would save money over the life of the loan and be at a lower interest rate, but as it needs to be paid off in 15 years, the monthly payment is higher.  Sometimes 40 yr fixed and 50 year fixed loans are available, but the increase in interest rate probably makes them not worth pursuing.

A 7/1 arm (adjustable rate mortgage) has a lower initial interest rate than a 30 yr fixed, and is still amortized over 30 years, and the first 7 years are fixed at the initial rate, but one is taking a large gamble after the 7th year at the first reset.  As the Federal Reserve is currently subsidizing mortgage rates though their quantitative easing (QE3)  MBS (mortgage backed securities) buying program, it is highly likely that an ARM loan would have substantially higher interest rates in the 8th year, and the consecutive years as each year after the rate resets again.  Where as a 30 year fixed rate loan has a fixed monthly payment for the life of the loan.

So, part of the answer depends on if you will be selling the house in about 7 years..., or if you are planning on paying the loan off and retiring in the house with no mortgage obligations after retirement.
  • December 09 2013
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Check with your local savings bank to see if you qualify for any subsidized first time homebuyer programs in your area. If that doesn't work and your ownership horizon for this home is less than 10 years, you may want to look at conventional intermediate adjustable rate mortgages. The spread in rates between say a 7/1 ARM and a fixed rate have increase over the past several months and the ARM may provide you with the lower payment you are looking for.
  • December 09 2013
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Hi 

conventional with 10 % down with Lender Paid Mortgage Insurance would be best option for you . 


good luck 


Omar Khamisa
  • December 08 2013
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Profile picture for Kathy Morrow
Congratulations on the credit score. You have options. A good mortgage loan consultant will guide you to the best choice. You probably qualify for a 5% down payment and pre-paying the mortgage insurance could keep your payments low. Depending on the property and market you may be able to have a seller pay for some closing costs. Frequently putting a little more down can get you a better interest rate. 
The options change daily so I good mortgage professional is in your best interest. Also a company whose fees are low so you do not use up your down payment on fees.
Good luck!
  • December 08 2013
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Your best option is to talk to a mortgage company. A good consultant will be able to walk you through the different options.
  • December 08 2013
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Profile picture for Brent Tye

If your credit score is that high, you should look at a Conventional loan with 5% down.  The MI will be much lower then a FHA loan and there is not an upfront charge.

  • December 07 2013
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Hi,

Based on the information you've provided, you would be best fit for Conventional financing, rather than FHA, but of course your income will be a key factor to determine this.

Your best option is to speak with a lender who will review your financial information and your goals, and help you make the right choice for your scenario.  I'm just down the 405 from you, in Seal Beach.  I'd be happy to meet with you at my office, or via phone/email, whatever is best for you.

Please contact me to get started or for any questions.  I'm here to help.
  • December 07 2013
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As long as your debt ratio is low enough, you can do what is called an "80/10" loan. With this loan, you don't waste any of your money on mortgage insurance. Here, you put 10% down; you have a second mortgage for $240,000; and then we can find you either a fixed or variable second line for the remaining $30,000 balance. '

My bank also has options for lender paid mortgage insurance if you don't want a second equity line. Either way, you avoid mortgage insurance. 

Feel free to contact me, and I will discuss with you the details. 
  • December 06 2013
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Your scenario looks like it should be a Conventional loan rather than an FHA. Without knowing anything further about your scenario, it seems that a Conventional will likely meet your needs. Just keep in mind that you will have mortgage insurance if you put less than 20% down, but the costs are relatively low. Also, look at lender paid mortgage insurance (LPMI) or even a Split premium. Each are good options. Some will also allow for a down payment of 5%, which may preserve some funds in your savings.
  • December 06 2013
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Greg,


I just sent over a message on your Zillow profile, I'd be happy to point you in the right direction.

I look forward to talking with you!
  • December 06 2013
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Travis,

I would love to learn about the conventional EOM's that don't require any MI. That would be a great thing to be able to offer to the community. I know Fannie and Freddie have theirs (My Community and Home Possible) but these only have reduced MI, not totally eliminated MI. Can you point me in the right direction of the program(s) you are referring to? I'm always open to learning something new!

Sincerely,
Greg
  • December 06 2013
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I agree with Greg, if you can qualify for a Conventional loan FHA isn't a great option now that they will not drop your MI.

There are also lenders that will offer EOM (Economic Opportunity Mortgages) programs that will allow you to put down as little as 5 percent down without requiring Mortgage Insurance for first time home buyers that meet their guidelines .  This can be a very interesting for a person in your situation.

Feel free to contact me for more information!
  • December 06 2013
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Scott Frasetto, FHA MI never drops off if putting down less than 10%. Please don't confuse prospective homeowners looking for information.

Once the homeowner has 20% (or even 80% as you said) equity the MI payment does not drop off. It is on for the life of the loan.

The only reason FHA would make any sense for this borrower would be if they could not qualify for a conventional loan or the MI (lets say due to excessive DTI as a potential reason). 
  • December 06 2013
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With a 10% down payment along with your good credit score it would be best to either go conventional or FHA. I recommend that you look into both of these to pick out which one best fits you. I also suggest you speak with a lender like myself who would be glad to speak with you to help you get the loan that you need and to help guide you through this process. If you have any further questions or if you would like a loan, feel free to contact me.

Good Luck!
  • December 06 2013
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We don't know what your income or debt ratio will be but assuming they are withing guidelines you definitely want to go with a conventional loan with your credit score and ability to put 10% down.

You'll have two ways to go. One loan for the entire amount borrower or one loan for 80% of the purchase price and 2nd loan for 10% of the purchase price (these are called 80/10/10 loans). Both have pros and cons.

The 90% all one loan will require mortgage insurance (or MI) is paid in one form or another. It can be paid monthly, up front, or paid for by an increase in the interest rate. All of these have their own pros and cons depending on your future plans/goals and current financial picture but most people putting down 10% seem to go with the monthly option if they plan on owning the home long-term as they will one day be able to remove the mortgage insurance and their payment will go down to just principal and interest.

The 80/10/10 option can also be a good way to go. With this scenario your first mortgage payment will be lower than in the 90% scenario, and there will be no mortgage insurance paid, but you will have a 2nd mortgage payment. Usually at a higher interest rate than the first mortgage. If you are buying a $300,000 home the 2nd mortgage would be $30,000. This would have to be paid off eventually and once it was you would only have the lower P&I payment. An even lower payment than the 90% option payment is once the MI is removed. 

It is a good idea to look at the numbers both short and long term with your loan officer to see which will work best for you.

Hope that helps a little. 

Sincerely,
Greg Cowart

Senior Loan Consultant - 17 Years Experience
  • December 06 2013
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With that credit that high, I would look at 5-10% down Conventional loan.

You can minimize your down payment by looking at an FHA mortgage, but since the FHA guideline change, you will actually have to pay MIP for the lifetime of the loan.  This will be pricey.

Best,

Bryan
  • December 06 2013
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I agree with Brian FHA may be your best option you will have to pay mortgage insurance however once you reach 80% of equity into your home, it will drop off.

However reaching out to one of us loan officers will be able to help you determine what you actually qualify for.
Good luck and best wishes!
  • December 06 2013
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Profile picture for Brian GFL Capital
with the limited down payment an FHA loan will only require 3.5% down but will require an up front FHA fee.

its better to get a conventional loan at 5% down if possible because there is no up front FHA fee with the conventional route.
  • December 06 2013
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Profile picture for daveskow
combination loan ....fixed rate on the 1st mortgage ....
1st mortgage for 80% of the purchase price ......2nd mortgage ( or HELOC - home equity line of  credit ) for 10% of the purchase price ...this will allow you to avoid FHA and also loans that require monthly mortgage insurance

thanks
  • December 06 2013
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