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Home Purchase
Buying a home involves finding the property, securing financing, making an offer, getting a home inspection, and closing on the purchase. National and state first-time buyer programs may be applicable if you cannot afford a high down payment. Once you have moved in, it is essential to maintain your home and keep saving.
Reasons To Purchase a Property
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Pride of Ownership: Pride of ownership is probably the number one reason people enjoy owning their homes. It means you can paint the walls any color you desire, turn your music up, attach permanent fixtures, and decorate your home according to your taste. Homeownership also gives you and your family a sense of stability and security. It is investing in your future.
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Tax benefits: The U.S. Tax Code lets you deduct the interest you pay on your mortgage, property taxes, and some of the costs involved in buying a home.
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Appreciation: Historically, real estate has had a long-term, stable growth in value. In fact, median single-family existing-home sale prices have increased on average 5.2 percent each year from 1972 through 2014, according to the National Association of REALTORS®. The recent housing crisis has caused some to question the long-term value of the real estate, but even in the most recent ten years, which included quite a few awful years for housing, values are still up 7.0 percent on a cumulative basis. In addition, the number of U.S. households is expected to rise 10 to 15 percent over the next decade, creating a continued high demand for housing.
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Equity: Money paid for rent is money you will never see again, but mortgage payments let you build equity ownership interest in your home.
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Savings: Building equity in your home is a ready-made savings plan. And when you sell, you can generally take up to $250,000 ($500,000 for a married couple) as gain without owing any federal income tax. With some restrictions applied.
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Predictability: Unlike rent, your fixed-rate mortgage payments do not rise over the years, so your housing costs may actually decline as you own the home longer. However, keep in mind that property taxes and insurance costs will likely increase.
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Stability: Remaining in one neighborhood for several years allows you and your family time to build long-lasting relationships within the community. It also offers children the benefit of educational and social continuity.
Loan Programs
Conventional
A conventional loan is a mortgage loan that a government agency does not back; instead, it is available and guaranteed through the private sector (Fannie Mae and Freddie Mac). Conventional loans remain far and away the most common type of mortgage. It is used mainly for Primary Residences and Investment Properties.
General characteristics to know:
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Down Payment: There are options as low as 3% of the sale price for Primary Residence, although the standard down payment typically starts at 5%. Both options will trigger Private Mortgage Insurance (PMI).
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Private Mortgage Insurance: It is a type of insurance that protects lenders from losses resulting from default on loans. It is typically required when a borrower has a down payment of less than 20% of the home's purchase price. The borrower usually pays the insurance premium as part of their monthly mortgage payments. The PMI can be requested to be removed when the property acquires 20% of equity, and the borrower has two full years of on-time payments, or when the mortgage reaches 78% of its amortization schedule.
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Occupancy: Conventional loans can be used for Primary Residences, Second Homes (10% down payment), and Investment Properties (20% down payment) .
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Income: Must have income verification through Paychecks/W2s or Tax Returns (Self Employed), Awards Letters, Pensions, etc.
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Debt-to-income Ratio (DTI): The DTI compares how much the borrower owes each month to how much they earn. It's the percentage of monthly minimum debt payments divided by the gross monthly income. For Conventional loans, the DTI, including the new mortgage payment, cannot be higher than 50% of the monthly gross income.
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Credit Score: Will highly impact the Interest Rate and Mortgage Insurance Cost for those loans. It is possible to get approved for a conventional loan with a credit score as low as 620, although some lenders may look for a score of 660 or better.
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Interest Rates: Conventional Loans usually offer higher interest rates than FHA, VA, and USDA loans, but typically with lower APR (less cost to originate the loan) and can be either fixed or adjustable rates. The interest rate for this type of loan will largely depend on your credit score and overall credit history. The better the credit, the better the rate. Conventional loans remain far and away the most common type of mortgage, traditionally accounting for almost 80% of new home sales in the USA.
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Loan Limits: Conventional loan limits change every year. The loan limit goes as high as $726,200 for single-family homes in 2023. To purchase a home with a bigger loan than that, unless the property is located in a high-cost area, the borrower will need a Jumbo or Non-QM loan.
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Loan Terms: Conventional loans are typically for over 30 years, but it is possible to qualify for flexible terms, such as 10, 15, 20, and 25-year terms.
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Units: The property can be from 1 to 4 units. Loan limits and qualification criteria may vary depending on the number of units.
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Curiosity: Conventional loans are mortgages purchased by Fannie Mae and Freddie Mac. These two companies are government-sponsored enterprises (GSEs) created by Congress to provide liquidity, stability, and affordability to the U.S. housing and mortgage markets. They are responsible for buying mortgages from banks, helping them create more cash flow to continue originating and processing home loans. Both entities purchase and sell conventional loans. Although they are each backed by the federal government, the loans are not. Private lenders back conventional loans, so the borrower does not apply directly with Fannie Mae or Freddie Mac for a mortgage, but either of those companies may purchase the mortgage loan. Each entity either holds onto those mortgages as part of its portfolio or repackages them into mortgage-backed securities.
FHA
FHA loans are mortgages insured by the U.S. government (the Federal Housing Administration, more specifically), and they are considered slightly riskier to the lender since borrowing criteria are less strict. The government backs the loan to reduce the lender's risk, and the borrower must pay mandatory mortgage insurance for this loan.
General characteristics to know:
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Down payment: starts with only 3.5% of the purchase price.
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Mortgage Insurance Premium: With 3.5% down, an FHA loan requires you to pay mortgage insurance for the life of the loan unless you put down 10% or more, which you can stop paying after 11 years.
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Funding Fee: FHA loans apply a funding fee of 1.75% of the loan amount, which makes its APR usually 1.5 to 2 points higher than conventional fixed-rate mortgages for borrowers with good to excellent credit.
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Occupancy: It can be used only for Primary Residences.
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Income: Must have income verification through Paychecks/W2s or Tax Returns (Self Employed), Awards Letters, Pensions, etc.
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Debt-to-income Ratio (DTI): The DTI compares how much the borrower owes each month to how much they earn. It's the percentage of monthly minimum debt payments divided by the gross monthly income. The DTI, including the new mortgage payment, cannot be higher than 56.99% of the monthly gross income for FHA loans.
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Credit Score: FHA loans are more flexible with challenging credits, in most cases allowing borrowers with credit scores as low as 580 to qualify for a mortgage with the minimum down payment required. If the credit score is from 500 to 579, the borrower may qualify but must come up with a 10% down payment.
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Interest Rates: Interest rates for FHA loans are typically lower than conventional loans but can vary depending on the credit history, loan amount, and other factors. Usually, FHA loans are available with fixed or adjustable rates.
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Loan Limits: the FHA loan limit changes accordingly to the county in which the property is located. FHA's nationwide forward mortgage limit "floor" and "ceiling" for a one-unit property in 2023 are $472,030 and $1,089,300, respectively, depending on the county and number of units the property has. In Florida, most counties respect the floor limit, but more expensive counties, like Miami-Dade, Broward, and Palm Beach, have their limits at $557,750.
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Loan Terms: FHA loans are typically for over 30 years, but it is possible to qualify for flexible terms, such as 10, 15, 20, and 25-year terms.
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Units: The property can be from 1 to 4 units. Loan limits and qualification criteria may vary depending on the number of units.
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Closing costs: An FHA loan lets you finance some closing costs (funding fee) and spread them out over time as part of your mortgage payment.
VA
VA loans are a type of mortgage specifically for veterans, military members, and their surviving spouses. These loans typically require no down payment and can offer lower interest rates than conventional loans; also, there is no minimum credit score requirement.
General characteristics to know:
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Down Payment: VA loans are eligible for zero-down payment options.
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Mortgage Insurance: There is no mortgage insurance on VA loans.
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Funding Fee: Unless the Veteran is 10% disabled or more, which makes them exempt from any funding fee, first-time VA borrowers who make a down payment of less than 5% will pay a fee equal to 2.3% of the loan amount. Subsequent borrowers with the same down payment pay a little bit more; 3.6%. If they put down a larger down payment, the funding fee will be lower. This fee can be paid at closing or financed into the loan.
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Occupancy: It can be used only for Primary Residences, but the borrower may be eligible to turn their primary residency into an investment property and get another VA loan to purchase a primary residency.
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Income: Must have income verification through Paychecks/W2s or Tax Returns (Self Employed), Awards Letters, Pensions, etc.
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Debt-to-income Ratio (DTI): The DTI compares how much the borrower owes each month to how much they earn. It is the percentage of monthly minimum debt payments divided by the gross monthly income. The ideal DTI ratio for a VA loan is 41%. Still, it is essential to note that the Department of Veterans Affairs does not set a maximum limit on the DTI ratio but rather provides guidelines for VA mortgage lenders who
set their criteria based on the borrower's credit score and other financial factors, which usually set the maximum DTI ratios allowed around 50%.
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Credit Score: There is no minimum credit score requirement. Instead, VA requires a lender to review the entire loan profile. Lenders typically have less restrictive credit requirements for VA loans than conventional mortgages.
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Interest Rates: VA loan rates are generally lower than any other mortgage. Rates are determined based on several factors, including the borrower's credit score, loan type, and current market conditions.
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Loan Limits: If the borrower does not have a loan through the VA, he has no loan limit. But if the borrower is currently using a VA loan, their VA home loan limit is based on the county loan limit where they live. If the veteran defaults on the loan, the VA will be responsible for paying the lender up to 25% of the county loan limit minus the amount of the entitlement the veteran has already used.
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Loan Terms: VA loans are typically for over 30 years, but it is possible to qualify for flexible terms, such as 10, 15, 20, and 25-year terms.
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Units: The property can be from 1 to 4 units. Multifamily properties will require up to six months in assets reserves from the borrower. Loan limits and qualification criteria may vary depending on the number of units.
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Frequency: Eligible to use the VA loan can use their loan benefit as often as they would like throughout their lifetime. As long as they are still eligible for a VA loan and are able to qualify with a lender, there is no limit to how many of these mortgages they can take out throughout their life. Simultaneously, it is possible to have more than one VA loan in certain circumstances.
Jumbo
A jumbo loan, or jumbo mortgage, is a home loan for an amount exceeding the Federal Housing Finance Agency (FHFA) limits. Unlike conventional mortgages, a jumbo loan is not eligible to be purchased, guaranteed, or securitized by Fannie Mae or Freddie Mac. Jumbo mortgages are designed to finance high price properties and homes in highly competitive local real estate markets and have unique underwriting requirements and tax implications.
General characteristics to know:
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Down Payment: Require larger down payments. Jumbo loan issuers typically require a down payment of 20% or more.
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Mortgage Insurance: Down payments more significant than 20% preclude the need for PMI, but in the rare instance where a lender accepts a down payment lower than 20%, PMI may be required on a jumbo loan just as it is on conforming mortgage loans.
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Credit Score: Higher credit scores. Many lenders require a credit score of about 700 or better for many jumbo loans and typically accept no score lower than 660.
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Income: Must have income verification through Paychecks/W2s or Tax Returns (Self Employed), Awards Letters, Pensions, etc.
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Debt-to-income Ratio (DTI): Requires a greater cash flow. Mortgage lenders typically look for a debt-to-income (DTI) ratio—calculated by dividing monthly debt payments by gross monthly income—of around 43% when issuing jumbo mortgage loans.
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Reserves Required: Additional assets. As a safeguard against the possibility of missed payments on jumbo loans, lenders often require applicants to prove they have access to savings or other liquid assets sufficient to cover as much as one year of loan payments.
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Interest Rates: Higher interest rates. The additional risk associated with this type of loan typically leads lenders to bump up interest by 1 or 2 points in fixed rates compared with the prevailing rates on conventional loans; however, an adjustable-rate mortgage is a well-explored option to secure the lowest possible rate.
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Loan Terms: Jumbo loans are typically for over 30 years, but it is possible to qualify for flexible terms, such as 10, 15, 20, and 25-year terms.
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Additional appraisals: In addition to the standard property appraisal required for any mortgage loan, jumbo lenders may require a "second opinion" appraisal to confirm the property's market value. Because properties subject to jumbo loans are often large and unusual compared to neighboring properties, each appraisal is likely to be more expensive than a more traditional property.
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Higher closing costs: To help cover the cost of the more extensive verification process required for jumbo loans, lenders typically charge a higher percentage of the purchase price (i.e., more "points") as loan origination costs.
Non-QM
A Non-QM loan, or a non-qualified mortgage, allows you to qualify based on alternative methods instead of the traditional income verification required for most loans. That is the main difference between the QM and Non-QM loans. This type of mortgage does not meet the Consumer Financial Protection Bureau's (CFPB) requirements to be considered a qualified mortgage (QM Loan).
These loans are for borrowers with unique income-qualifying circumstances and possible credit issues.
Non-QM loans are the only way to make investment opportunities plausible for many potential homeowners and real estate investors.
Non-QM Mortgage Benefits
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Most of its programs do not require Tax Returns for income verification
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Greater underwriting flexibility
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Flexibility on income calculations
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Flexibility on job history requirements
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A 10% down minimum Down Payment is required for Primary Residences
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Flexibility on Credit Scores (with a higher impact on the interest rate and loan-to-value)
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No Income Loans or Stated Income Loans on investment properties
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Counting rental income (including Airbnb & VRBO)
Non-QM Mortgage Products Available
Non-QM loans tend to be flexible and adaptative accordingly to market conditions. Due to these circumstances, the Non-QM products are constantly changing and updating and coming on and off their availability.
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Bank Statement Loans
For this Non-QM program, bank statements are the only document required to verify income. Borrowers can qualify with as little as three months' bank statements; however, the most popular programs are the 12-month or 24-month bank statement loans. This loan is often a good solution for self-employed borrowers, business owners, realtors, consultants, and entrepreneurs.
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No Income Investment Loans (DSCR Loans - Debt-Service-Coverage-Ratio)
DSCR investment loans allow investors to build their real estate portfolio with fewer hiccups. The Debt-Service-Coverage-Ratio loan uses the property's rental income to qualify and does not consider the borrower's income. The ratio is calculated by dividing the property rental's annual net operating income by its total annual debt service payments. If the DSCR is 1.0 or higher, it is generally accepted by the lenders, and if it is lower than 1.0, some exceptions must be considered to qualify.
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Foreign National Loans
A foreign national loan is a type of loan designed for non-U.S. citizens who are looking to purchase a home in the United States. There is no need for a valid Social Security number, U.S. FICO score, or Individual Tax Identification Number (ITIN). To qualify, the borrower will need only a valid passport and the down payment (usually 30% of the purchase price), and the closing cost available.
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Jumbo Loans with 10% Down
While traditional jumbo loans still often require 20% down, we offer near-miss jumbo loans up to $3 million with as little as 10% down, up to a 50% debt-to-income ratio, and flexibility on credit scores. Jumbo loans with 10% down are often the ideal solution for first-time buyers who might still have large student loans and other credit debts, such as student loans or medical bills. The 10% down jumbo loan program is also suitable for high-income earners looking to invest their cash in other assets.
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ITIN Loans (Individual Taxpayer Identification Number)
An ITIN mortgage loan is a type of mortgage loan specifically designed for individuals who do not have a Social Security number. Instead, they use their Taxpayer Identification Number (ITIN) as the primary form of identification. The documentation and credit requirements vary by lender, but generally, we use Tax Returns, Profit & Loss statements, Bank Statements, or Seasoned Assets to document income.
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Interest-Only Home Loans
There are interest-only home loans on 40-year fixed loans, 30-year fixed loans, 7/1 arms, and 5/1 arms. You will only pay the interest during the first 10 years of the loan, providing significant savings over the life of the loan. However, it is essential to remember that you will not be paying down the principal balance during the interest-only period.
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Recent Credit Event Loans
Recent credit events can make it challenging to secure a loan because many lenders view them as a red flag. However, there are loan programs for borrowers with recent credit events, including foreclosure, short sale, and bankruptcy. While there are options for as little as one day out from the credit event, loan terms typically improve the longer it has been, even in a year or two.
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Commercial Rental Property Loans
There are a variety of loans built explicitly to the needs of real estate investors who want to expand their portfolio to include single-family homes, 2 to 4-unit properties, condos, townhomes, multi-use, and multifamily five or more-unit properties.
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