Financial Matchmaking: Find the Right Loan for Your New Home Goals

The journey of a first time home buyer can be a harrowing one. It is a complex process and experiencing a variety of emotions along the way is completely normal. Thank the internet for that; allowing us to spend hours looking at homes and floorplans – escaping to the dream of homeownership before we approach the reality of home buying. While it isn’t universally true, there is no doubt the process has some nuances, and an unprepared buyer will feel overwhelmed. Luckily, some information, strategy and finding the right lending partner can go a long way in laying the foundation for making those dreams a reality. All of these contribute to confidence in your finances and therefore, other choices along the way. Consider this your guide to financial matchmaking and finding the right home for your new home goals.

Knowledge is power

Let’s start by addressing the acronyms, which find endless use in mortgage. Take a complex term and condense it to three or four letters and it makes it all simpler, right? Wrong!!! In this post, the following five acronyms will be used.

THB = First-Time Home Buyer, someone who has not owned a home in the past three-years

DPA = Down Payment Assistance, funds to help cover the downpayment and/or closing costs

AMI = Area Median Income, statistical middle income for a geographic area (not the same as average)

DTI = Debt-to-Income, how much debt a person has compared to their income

LTV = Loan to Value, the percentage of a loan compared to the value of the home

Planning ahead

One challenge FTHBs face in today’s market is saving up enough for a downpayment and closing costs. The minimum down payment for a FTHB is 3% on a conventional loan. This can be especially challenging, even with moderate income, given our recent inflation rates and home appreciation. A FTHB does not have the advantage of rolling equity from a previous home into their next purchase, so quickly accumulating $20,000 to purchase a home is not an easy task. Let’s face it, it is hard to save fast enough!

A second pain point for that FTHB with limited funds is finding a program. Many DPA programs have income limits that are set by AMI. Furthermore, many programs require your income to be 80% of AMI and since it varies by location, some less densely populated counties, can be prohibitively low. Examples include Whitfield or Murray County at $57,200! Fortunately, the closer to a metro area you get, the more reasonable they become with 80% AMI of Catoosa, Walker, or Hamilton being $72,560.

The good news is, that if you are in that 80% AMI range, there are some excellent programs available. Two offered by first bank are FirstStart, a conventional FTHB loan up to 105% LTV or BetterAffordable, a FTHB conventional loan up to 100% LTV. Both of these loan programs feature Fannie Mae and Freddie Mac programs that provide lower interest rates than standard mortgages.

But what happens when you work hard, climb the “ladder,” establish good credit, pay down debt, only to find out you make too much money? Thankfully, FirstBank was still thinking of you! We offer BetterFuture, one of the few, true no-income limit conventional FTHB loans! We spent over half a year working with Fannie Mae and Freddie Mac, those two big quasi-governmental agencies that setup the guidelines on conventional loans, to create a product that works for all incomes. The program requires a minimum investment of $1,000, but AMI is irrelevant.

Finding the right lending partner

The bottom line is this: A good loan officer will ask the right questions, collect the right documents, and identify the right program. But, it is helpful to be aware of the process and through the process. Ready to get started? Let’s talk!

Example: On a $300,000, 30-year loan with 0% down payment, the total monthly mortgage payment with a rate of 6.99%, 7.066% APR would be $1,976, taxes and insurance not included. The FirstStart Loan requires a borrower investment of $500. The BetterAffordable and BetterFuture Loan requires a borrower investment of $1,000. The borrower investment can be used towards any closing costs, including appraisal. Application is required and subject to underwriting. Not all applicants are approved. Full documentation and property insurance required. Loan secured by a lien against your property. Fees and charges apply and may vary by product and state. Terms, conditions and restrictions apply, so call for details. FirstBank Mortgage provides a variety of loan products with different rates, payments and fees. All loans are subject to credit approval. Products and services offered by FirstBank. FirstBank Mortgage is a division of FirstBank. FirstBank Institution NMLS ID 472433.

Get Started

Ultimately, the Pratt Home Builders team is the first start place. Once you have had a Discovery Call to get ideas on the best community for you, a Pratt New Home Consultant, who are all licensed Realtors, can offer more information on the various options whether a personalized build or a designer market home is right for you, and which of their vetted lending partners is the best fit for that goal.

New Construction FAQs: “How do I finance my new construction home?”

One of the most common questions hopeful new home buyers often ask is: “Do I need a new construction loan?” You may be surprised to learn the answer is no. How is that possible when you’re buying a new home that’s under construction, or when building from the ground up? By the time you actually close on your home, the work will be complete.

While Market Homes and Pre-Sales have a few differences when it comes to selections and timeline to move in, the financing is the same for both – and standard lending products are welcome. Here’s a quick overview of the differences in what money you’ll need upfront to start your respective process, and of the types of financing we often see in New Home Construction.

Getting started: In some cases, the money needed upfront can be among the determining factors in deciding whether to buy a Market Home or build. Market homes are for sale at all stages of construction and require only a small earnest money deposit to proceed with a purchase agreement. In order to participate in our Pre-Sale process (choose the plan, site and finishes), buyers must provide a little larger deposit.

*Please note, down payment is different than the deposit. The deposit is made payable to the builder and is ultimately applied toward the purchase price of the home ot towards the down payment at closing. The down payment is part of the lending process, and although also is applied toward the purchase price, this is the requirement to fund the loan and paid to the title company or bank.

FHA

An FHA (Federal Housing Administration) loan is among the most popular financing choices, especially for first-time homebuyers, since the credit score and down payment needed to qualify are low. The FICO score must be 580 or higher, and the down payment can be as low as 3.5 percent of the sales price.

The VA (Veterans’ Administration) is available to current and former military and National Guard members, and is one of the best if you qualify, and it’s among the most popular choice for Pratt Home Builders customers. There is no money down in many cases, no PMI, and the loans are assumable if you sell. VA loans in Hamilton and Bradley counties can currently be funded up to $453,100.

Conventional

The most common loan is the conventional loan, these can vary significantly to adjust to the buyer’s needs and can be the least restrictive in some regards. A conventional loan generally requires more money down and a higher credit score, but often offers lower interest rates. They typically require between three and20 percent down, and the down payment determines whether a PMI (private mortgage insurance) is required. A 20% down payment will eliminate the PMI.

THDA

The THDA (Tennessee Housing Development Authority) loan was created by the government to boost home ownership in certain areas, so it’s not a lending option in all Pratt communities, but is available in some. There are certain parameters for the home price and the buyer’s household income. In general, THDA loans are for first-time home buyers but there may be some exceptions so it’s always best to check with a lending professional.

PMI

PMI is an insurance policy that protects the holder against loss resulting from default on a mortgage loan. Insurance requirements are sufficient to guarantee that the lender gets some pre-defined percentage of the loan value back, either from foreclosure auction proceeds or from PMI.

To learn more about what new home financing option is ideal for you, contact Pratt Home Builder’s Preferred Lender, Blake McPherson.

https://prattliving.com/homebuyers-corner/financing-options/