Would you like to buy your first home? Here are some requirements you must have before you can start the process!
“Step by step, a place became a property, a property became a mortgage, and mortgages became derivative investments.” – Douglas Rushkoff, Life Inc.: How the World Became a Company and How to Take It Back
Are you considering buying a new house? You may be upgrading your existing residence. Or you can buy an additional residential property to expand your investment portfolio. After all, you could be a first-time buyer. While the reasons for buying a new home are reasonable, the question of how to pay for your new home is extremely relevant. The fact is that very few people can afford to buy a home by paying the full amount in cash. Statistics for 2019 show that around 70% of U.S. workers cannot afford to buy a home, although home sales prices are cheaper than 2018. Some of the reasons are:
- Housing costs compared to the average monthly wage.
- According to the Federal Housing Agency, the requirements for mortgage loans have increased.
Finally, in her article titled "2018 Home Buyer Report", Elizabeth Renter noted that 75% of all U.S. residents believe that buying a home is a priority. Therefore, the question that needs to be asked and answered is how to solve the problem of affordability.
Financing your new property
In summary, it can be said that the biggest challenge when buying a home is the affordability rating of the buyer in relation to the cost of the property. In addition, this point is the main reason for what type of residential property you can purchase. The good news is that there are several ways to solve the affordability challenge. The easiest or easiest way is to apply for a mortgage. This statement appears to be directly opposite to an earlier comment in this article, which found that mortgage loan requirements have become less flexible. It is therefore easy to assume that it is practically impossible to successfully apply for a mortgage. This assumption is not necessarily correct. The whole point is that it will still be possible to qualify for a home loan. Potential buyers must ensure that they meet the stricter requirements.
So let's take a look at the different types of mortgages and their individual requirements:
At the beginning of this topic, it is correct to assume that various mortgages have a credit limit. USA home loans are divided into two broad categories: the compliant mortgage and the huge home loan.
The Jumbo Mortgage
In short, the jumbo mortgage is a high-end loan and is used to buy houses that cost more than the maximum allowable loan. In addition, it can be assumed that the Jumbo loan represents a higher risk for both the lender and the borrower. In other words, the borrower is more likely to be late in repaying the loan. The qualification criteria therefore include elements such as an excellent credit rating and the percentage of the down payment is usually higher than with a conventional mortgage loan. It is also important to take into account that a higher level of risk leads to higher interest rates. Therefore, the Jumbo mortgage has a higher interest rate than one of the compliant mortgages.
The compliant home loan
As previously mentioned, a maximum amount of money is set for types of home loans that fall into the compliant mortgage category. At the end of 2019, the Federal Housing Finance Agency announced that the maximum loan was $ 510,400. In other words, home buyers cannot buy a home that costs more than approximately $ 510,000 and fund it with one of the corresponding mortgages. Buying a higher quality home with the mortgage instrument requires the jumbo loan. In summary, here are some details of the more popular compliant mortgages:
With the ARM or the adjustable rate mortgage, the successful applicant can choose between setting the interest rate for the entire loan repayment period or changing the interest rate after a specified time based on certain criteria such as the total term of the loan and the repayment behavior. On the other hand, the interest rate of a fixed-interest loan is set from the start to the completion of the loan. The VA loan is guaranteed by the federal government and is only available for military veterans as well as for current employees and their family members.
When deciding to buy a home with the mortgage vehicle, it is imperative that you consider all available options and set the maximum purchase amount. Otherwise, the risk of late payment in the monthly repayment is high. And the consequences of a loan repayment failure can be bad and not worth the risk.