Financing Resources

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  FHA Loan

An FHA loan is a mortgage insured by the Federal Housing Administration. Allowing down payments as low as 3.5% with a 580 FICO, FHA loans are helpful for buyers with limited savings or lower credit scores.

The FHA was created as part of the National Housing Act of 1934 to stem the tide of foreclosures and help make homeownership more affordable. It established the 20% down payment as a new norm by insuring mortgages for up to 80% of a home's value — previously, homeowners had been limited to borrowing 50%-60%. Today, the FHA insures loans for about 8 million single-family homes.

  Conventional Loan

You'll generally need a credit score of at least 620 to qualify for a conventional loan, though a score that's above 740 will help you get the best rate. Depending on your financial status and the amount you're borrowing, you may be able to make a down payment that's as low as 3% with a conventional loan. (Although be aware that a higher down payment may help get you a lower rate.)

  What is private mortgage insurance?

Private mortgage insurance, also called PMI, is a type of mortgage insurance you might be required to pay for if your down payment is less than 20%. Like other kinds of mortgage insurance, PMI protects the lender—not you—if you stop making payments on your loan.

  As a general rule, PMI is required anytime a homebuyer either purchases a home with a down payment of less than 20 percent of the purchase price, or refinances the home with a new mortgage that exceeds 80 percent of the property’s appraised value.

  In each case, the lender is looking to make sure that the borrower has a personal stake in at least 20 percent of the property.

  When a homeowner has already paid for at least 20 percent of property, it is considered unlikely that he or she will walk away from the property and not pay the mortgage — they simply have too much to lose by walking away and not honoring the mortgage.

  Making you pay for PMI does not mean the lender has zero risk on a loan. This is because PMI does not insure the entire amount of the mortgage, but only a percentage of it. If you only put down five percent on a property, you may have to pay for PMI that covers 30 percent of the mortgage.

  What Is Streamline Refinancing?

Streamline refinance programs typically allow borrowers to bypass many of the traditional mortgage requirements by offering minimal credit scoring requirements, no new appraisal, easier income and asset verification, and limited paperwork. Reducing the paperwork can often make the process easier and faster, which is why it’s called “streamline refinancing.” Streamline refinance refers only to the amount of documentation and underwriting that the lender must perform, and does not mean that there are no costs involved in the transaction.

  Down Payment Assistance

The Missouri Housing Development Commission (MHDC) has two programs: First Place and Next Step.

Benefits

First Place:

- Available to first-time homebuyers and veterans

- Assistance is 4% of the first mortgage amount

- Forgiven after you’ve been in the home for 10 years

- 30-year fixed rate

Next Step:

- Available to first-time homebuyers and veterans

- Assistance is 4% of the first mortgage amount

- Forgiven after you’ve been in the home for 10 years

- 30-year fixed rate

- Lower interest rates for homebuyers in opportunity areas

FHA 203k Mortgage

FHA's Limited 203(k) program permits homebuyers and homeowners to finance up to $35,000 into their mortgage to repair, improve, or upgrade their home. Homebuyers and homeowners can quickly and easily tap into cash to pay for property repairs or improvements, such as those identified by a home inspector or an FHA appraiser. Homeowners can make property repairs, improvements, or prepare their home for sale.  Homebuyers can make their new home move-in ready by remodeling the kitchen, painting the interior or purchasing new carpet.

© 2021 St. Louis Home Guide

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