One of the best things someone looking to purchase real estate can do, prior to beginning their search, is to talk to a local lender. For a number of different reasons 1) to see how much they can qualify for and 2) to see what type of loan might suit them the best. If you do not talk to a lender prior to conducting a real estate search you might be wasting your time. Often buyers will look long and hard before finding the 'perfect' property only to find out they do not qualify for the amount needed to purchase such a property. On the other hand, they might find they qualify for more than they thought and thus are able to purchase that one of a kind property they once thought was out of their price range.
With that being said there are a number of different loans a buyer may have to choose from. Let's take a look at some of these loans and what distinguishes each from one another.
CONVENTIONAL- These loans typically involve a loan amount of 97%, 95%, 90%, 80% or below the purchase price. If the LTV (Loan to Value of the property) is greater than 80% Mortgage Insurance (a.k.a. PMI) may be required since it is considered a higher risk to the lender. Conventional loans are most often used to purchase a primary residence, second home or investment property and often require a minimum credit score of 640. In South Carolina the conforming loan limit is $417,000. This means that the loan amount (not the contracted purchase price) is $417,000 or less.
FHA- On an FHA (Federal Housing Administration) loan a buyer can borrow up to 96.5% of the purchase price. This means you can borrow up to 96.5% of the value of the property. Typically those that use an FHA loan are borrowers with lower credit scores but are on the rise. You can only use an FHA loan for a primary residence and cannot use it to purchase a second home or investment property. The maximum loan amount on this type of loan is $387,500.
VA- (Veterans Administration) With a VA loan you can finance the entire purchase; i.e. 100% LTV. There is no mortgage insurance required on 100% financing. Yet, there is a VA Funding Fee unless you are exempt from such a fee, which is generally financed into the loan. As long as you qualify you can get a VA loan more than once however, it must be for a primary residence only (no secondary or investment properties). The maximum loan amount you can receive is $417,000.
RURAL HOUSING (USDA)- Those looking to use a USDA loan do NOT have to be first time homeowners. But, you cannot own another home in the immediate area. It is possible to get 100% LTV. USDA loans do not have mortgage insurance however, there is also a fee associated with this type of transaction that is paid directly to the USDA. Unlike a VA the USDA loan does have a monthly fee which is relatively low compared to a conventional mortgage insurance payment. USDA loans are area and income specific. Make sure to check yours and the properties eligibility with the lender. This type of loan must also be used to purchase a primary residence and cannot be used to purchase secondary or investment property. If you have a family of four you cannot earn more than $80,300/yr and for a family of 5 or more you cannot earn more than $106,000.
NON-CONFORMING/JUMBO- These loans are used for primary or secondary homes on amounts over $417,000. The rates are generally higher than conforming loans and the down payment requirements typically increase the higher the sales price. However, make sure to check with your lender as sometimes special financing may be offered.
For more information on Mortgages and Lending visit the Finance page of our website at http://www.pnprealestate.com/finance.html. You will find some of the sharpest minds on Hilton Head Island and in Bluffton to answer your most asked questions. If you do not find the answers you are looking for contact us and we will get the answer for you.
PNP Real Estate
Our goal is to help you Buy or Sell your property in a timely fashion by providing you with all the information necessaryFor answers to all your questions contact us at (843)-338-6737.