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What’s The Best Loan For You

3/2/2023 – VIDEO – How does a professional narrow down mortgage options?

Some people get better terms with different types of loans.  Certain types of loans are unique to certain situations.  There’s a natural progression of evaluating a borrower’s situation to determine how they’re going to get the best terms for the unique characteristics of their situation.  We use a process of elimination with the simple goal of finding borrowers the best terms on their mortgage.  We’ll go over how a professional with thousands of repetitions does this to dispense fully researched mortgage advice and grab every advantage in the fastest way possible.

We start with one guiding principal, what’s best for our borrower.

With that in mind our brokers dig deep talking about life goals and qualifications.  We can’t possibly understand what mortgage option might be best unless we have a good understanding of the borrower’s situation.  Here are the types of things we need to understand and how we’ll adapt a conversation based on the answers.

How much money is available for a down payment and where is it coming from?

This is usually the best place to start trying to match someone with the best mortgage.  Funds for closing is perhaps one of the biggest limiting factors for American homebuyers.  If there’s very little cash available to bring to closing then the options are limited so we’d jump straight to those low down payment options and start checking boxes.  We’d check to see if a borrower qualified for a USDA loan, was an eligible veteran, or was eligible for some kind of down payment assistance.

What is/are the credit score/s?

Credit score makes a big difference in the terms on your mortgage.  When someone has a credit score below 700 we usually start looking at options other than a conventional mortgage.  With the recent updates to FHA mortgage insurance the FHA program starts to become a competitive option when credit is below 700, and USDA also might be a good option.  If you’re a first time home buyer we’ll still be looking at conventional due to recent updates that waive pricing adjustments for first time home buyers, but that just happened in December 2022.  So you can see how we always have to do the math as programs and rates change all the time.  If you have excellent credit we’ll be looking at a conventional loan as your most cost effective option.

What’s going on with your income?

Have you been at the same employer for several years or have you changed jobs 5 times in the past 6 months?  Do you make more or less than income limits for down payment assistance, first time home buyer, or USDA programs?  Are you self employed?  Can you buy the home you want and keep your debt to income below 41%? or do we need to stretch that to 45% or maybe even up to 50%?  USDA can offer a $0 down loan and competitive rates with less than perfect credit, but if you haven’t been with the same employer for the last 12 months then you can most likely count USDA out.  If you’re self employed for less than 2 years that’s an issue.

What type of property are you looking to buy?

We can narrow down your options often times by the property type.  A good example is that USDA loans are only for single family homes.  They are not for working farms, townhomes, condos or multi units.  More than a few properties in rural Colorado are ineligible for financing with a Conventional, USDA, FHA, or VA loan.  In that case we usually refer you to one of our local banks that specializes in properties that don’t fit the mold for these other loan options.  For farms or land only you’re going to find a good option at a local bank, and companies like ours just don’t do that kind of loan; we only do residential real estate.  You’re always going to pay a higher rate on a private bank loan vs Conventional, USDA, VA, or FHA so if one of those options can do it we’re going to lean that direction and we’re always happy to help you find out if we’re a good fit for your mortgage needs so don’t hesitate to start a conversation.

Conclusion and bullet points

  • Low or no down payment we’re looking at USDA first, followed by conventional, and then FHA – We’ll also evaluate down payment assistance options that can be combined with either a conventional loan or an FHA loan as well.
  • The credit score will also help determine what type of mortgage is most cost effective – It’s as simple as doing an accurate comparison of what’s available.
  • You can make too much money to qualify for certain loan types, you’ll have to check income limits for each program.
  • The property and it’s unique characteristics can determine what type of loan can be used as financing.

There are a lot of different types of mortgage loans out there.  By knowing at least a little bit you can help protect yourself from all sorts of things along the way.  Having conversations with some mortgage professionals is a good place to start and we always encourage doing so.  The reason many people delay becoming home owners for so long is because they just don’t know what’s out there.  If you’re a stable person with a job that takes care of your business on a day to day then there are all sorts of ways to become a homeowner if you know where to look and what to focus on.  Keep doing this research or just give us a call and have us lay out a plan for you; it might be 30 minutes to get you pre approved, or 12 months but we’ll give you that plan and tell you what loans we should focus on.

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