Are you interested in financing a home but not sure which mortgage option to go with?
A Conventional loan is Ideal for borrowers with good or excellent credit. Conventional mortgages generally pose fewer hurdles than Federal Housing Administration or Veterans Affairs mortgages, which may take longer to process and fund. Conventional loans start at 5% down payment.
A FHA Loan is Ideal for borrows looking for a lower down payment option, they start at 3.5% down. FHA loans are often the only option for borrowers with high debt-to-income ratios and low credit scores. PMI (Private Mortgage Insurance) premiums last for the life of the loan, so the only way to get rid of the additional monthly cost is to refinance into a conventional loan.
PMI is insurance for the bank or lender, not for you the borrower. If you default and they foreclose on your house at a loss, the PMI will help them cover this loss. PMI is required by lenders anytime a home buyer purchases a home with a down payment of less than 20%. On a conventional loan PMI is typically paid until equity reaches 20%.
The actual cost of PMI to you as a mortgage borrower will very based on: The length of the mortgage, if the loan if fixed or variable, the loan to value ratio, and the level of coverage required by the lender. You should check with your lender to get an idea of how much PMI will cost.
Are you interested in purchasing a condominium and taking advantage of an FHA loan? You probably want to check out the FHA website to make sure the HOA (Home Owners Associate) has the proper reserves and is financially healthy. Each HOA has to apply and be approved in order for FHA to insure the loan, these FHA certificates normally last 2 years and the HOA has to keep up to standards if they want to remain FHA certified. If you want to see if an association you are interest in is FHA approved you can view the list on HUD’s website found here.
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