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Buying a home is the largest purchase most people will ever make. To see if you are ready for home ownership, Freddie Mac suggests that you look at your current situation and determine if:
• You have a continuing and reliable source of income prior to applying for the loan.
• You have a credit history that shows you're ready for homeownership.
• Your total debt is manageable and you can afford to take on the costs associated with homeownership.
• You have money saved for a down payment and closing costs.
Overall, this is sound advice. However, there are options for people with unpredictable incomes, as well as those who can’t make a down payment. There are even loans for people with poor credit, although paying off revolving debt will increase your FICO scores. Correcting errors on your credit reports will also help increase your credit score.
I'm thinking of making an offer to buy a home. What type of loan should I get?
To start with, you should know that:
1) Conforming loans are loans within the maximum loan limits set by Fannie Mae and Freddie Mac. The 2006 limit is $417,000. Any loan above that is a nonconforming (jumbo loan).
2) Conventional loans are within the Fannie Mae and Freddie Mac limits, and they meet typical underwriting guidelines. All others are unconventional loans.
With good credit, you can probably qualify for prime loans, if the purchase is within the Fannie Mae and Freddie Mac limits. If you can't afford a 20% down payment, you'll just have to pay private mortgage insurance (PMI) until you build at least 20% equity, or you can get 80-20 or 80-10-10 (piggyback) loans to avoid PMI. With 80-20 loans, 80% is financed by a first mortgage and the other 20% is secured by a second. An 80-10-10 entails an 80% first mortgage, 10% second mortgage and 10% down.
Sub-prime loans have opened created loan opportunities for people with bruised credit. Interest rates will be higher, but there are still a lot of loans available, including loans that offer 100% financing.
For those with less predictable incomes, there are interest-only loans and option ARMs (adjustable rate mortgages) that allow borrowers to pay less when their incomes run lean and more when bonuses, commissions and other forms of income come in.
Maria writes loan articles for banking institutions across the country. Check out these sites that she recommends: Get fast mortgage and home equity rate quotes at 1% Home Mortgage Loans. If you need more loan advice about refinancing with Bad Credit, take a look at 100% Home Purchase Mortgages. For debt consolidation and mortgage refinancing solutions, please visit the Refinance Loans.
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