Financing Resources
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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.)
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.
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.
VA LOANS
A VA Loan is a mortgage option issued by private lenders and partially backed, or guaranteed, by the Department of Veterans Affairs. Here we look at how VA loans work and what most borrowers don’t know about the program. The VA helps Servicemembers, Veterans, and eligible surviving spouses become homeowners. As part of their mission to serve, they provide a home loan guaranty benefit and other housing-related programs to help you buy, build, repair, retain, or adapt a home for your own personal occupancy.
VA Home Loans are provided by private lenders, such as banks and mortgage companies. VA guarantees a portion of the loan, enabling the lender to provide you with more favorable terms. With a VA-backed home loan, the VA guarantees (or stands behind) a portion of the loan you get from a private lender. If your VA-backed home loan goes into foreclosure, the guaranty allows the lender to recover some or all of their losses. Since there’s less risk for the lender, they’re more likely to give you the loan under better terms. In fact, nearly 90% of all VA-backed home loans are made without a down payment.
Lenders follow VA standards when making VA-backed home loans. They may also require you to meet additional standards before giving you a loan. These standards may include having a high enough credit score or getting an updated home appraisal (an expert’s estimate of the value of your home). The Department of Veterans Affairs (VA) does not make or originate loans, but backs a portion of each loan against default. This backing, or guarantee, is what gives private lenders the confidence to extend $0 down financing and advantageous rates and terms.
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
Loan Recasting
Buyers typically take out bridge loans so they can buy another home before they sell their existing residence.
That might sound like an ideal solution to a temporary cash crunch, but it's not without risk. Bridge loans are popular in certain types of real estate markets, but you should consider several factors before determining that one is right for you. Bridge loans are temporary loans, secured by your existing home, that bridge the gap between the sales price of a new home and the homebuyer's new mortgage, in the event the buyer's existing home hasn't sold before closing. In other words, you're effectively borrowing your down payment on the new home before your old home has sold.
Benefits
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A homebuyer can purchase a new home and put the existing home on the market with no restrictions
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Might gain a few months free of payments
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Can still buy a new home even after removing the contingency to sell under certain circumstances
Drawbacks
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More expensive than a home equity loan
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Must be able to qualify to own two homes
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The stress of handling two mortgages at once plus the bridge loan interest
Loan Recasting
A mortgage recasting, or loan recast, is when a borrower makes a large, lump-sum payment toward the principal balance of their mortgage and the lender, in turn, reamortizes the loan. This means that your loan is reduced to reflect the new balance.
Recasting cuts your monthly payments and the amount of interest you’ll pay over the life of the loan. It does not, however, affect your interest rate or the terms of your loan.
Not everyone can recast. For example, anyone with a government loan backed by Ginnie Mae is excluded from recasting. These include any FHA, USDA or VA loans. The reason these loans are excluded is related to how they are handled by the government. Jumbo loans are also typically exempt from being able to recast.
It’s important to note that some lenders do not allow recasting, but many do.
Assuming you can recast, lenders will also have their own guidelines about when you can do it. These guidelines are typically as follows:
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There’s usually a minimum amount of principal you must pay off before the lender will do a recast, either expressed as a flat amount or as a percentage of the loan balance. It’s common to require that clients make at least $10,000 in principal reduction payments in the year prior to recasting.
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You must make at least two consecutive monthly payments at your current payment amount before a loan can be recast.
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There may be a small fee (typically around $250) associated with the recast.
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There is not typically a limit around how many times someone can recast their loan.
Finally, you should be aware that it can take 45 – 60 days to complete a recast. During this time, you should keep making your regular payment. You’ll be able to make your new, lower payment as soon as you get your first billing statement reflecting the new payment amount.
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.