USDA Loans in NJ: Have You Found a Home Loan Provider?
USDA Loan Info helps compare conventional loans to FHA to VA when looking to obtain a contract. It’s important to understand:
Which USDA Loan is the best one?
Which one’s right for you and do you need to be rural located?
Which rural based loan is best for me?
We want to help you figure out which one is going to benefit you and your family the most, for you a short-term and/or long-term goals because it’s different for everybody.
Now there are advantages to each one when entering a contract.
Out of these rural loans so some have lower interest rates, some have lower fees there’s all kinds of different things to think about when considering USDA Loans.
Navigating the Process in NJ
Now most people have a tendency to just look at one thing. The new payment!
Well, it’s understandable when you’re buying a house you say, hey which which payment is cheaper and who should I go into contract with?
But, again how long you gonna be in that new rural house? Is there PMI? Will the PMI rates disappear? When will it disappear?
If the PMI rates are to disappear in five years butI’m gonna be here in 20 years, maybe this other loan is better a long term depending on your eligibility!
So we have to look at these things as a whole in order to understand USDA Loans and their sub-categories in their different area.
Now people ask you all the time what’s today’s interest rate with this kind of contract and what’s up with the USDA Loan eligibility?
NJ and the PMI Approach
When we look at the whole situation you have to understand that all these items, represent different risks to the lender and the higher the risk the higher the interest rate!
The lower the risk for example if you put a lot more money down, obviously a lower risk right?
NJ FICO Scores and What it Means to Your Home Ownership:
Or if you have a higher FICO score lower risk, non-dependent on the area right?
Well we have to look at these things as a whole to help you determine what interest rate you’re gonna get and that also helps determine which program is right for you!
Okay now it’s time we’re gonna get into the nitty-gritty we’re gonna get into the comparison with each eligible area and their program.
Number one – new conventional program. A conventional has a minimum of a 620 FICO Score Credit score if you’re not sure what a FICO score is that is your mortgage credit score.
Now on an FHA some lenders go as low as a 500 my company goes down to a 550 the truth is nobody gets approved at 500 anyway and on a VA we’re also looking at the same thing many lenders go to 500 company goes to 550.
PMI insurance and on eligible FHA
The MIP insurance premium now on a conventional what happens is it is very very dependent on what is your credit score somebody with a very high score might have a very low insurance payment, but if you have a 620 FICO score your insurance payment could be way high.
Now on eligible individuals for FHA.
FHA program has pretty much standardized regardless of the area, here is your MIP rate.
Remember they’re the same thing they just call them something else here’s your MIP rate it doesn’t matter if you have a 620 a 580 a 550 or 800 FICO score makes no difference you’re gonna pay the same rate.
Okay we’re almost halfway through the pros .
A debt ratio is the percentage of your gross. Eligible Gross income is before they take taxes out. A percentage of your gross income to your debt.
Now on a conventional program with a high FICO score they’re gonna allow you or a 50% that includes your car payment your cards student alimony child support all those kind of things plus the new house payment, that should be no more than 50% now if you have a lower FICO score, it’s probably gonna be 45% that’s how conventional works.
Now let’ stake a look at eligible FHA with a 580 FICO score or above, here’s what’s basically going to happen. You’re gonna probably be approved to a 56. 99%let’s call it 57%, again that includes all your debts plus the house payment as a payment.
Lastly we have a VA program:
Now a VA works very very different it looks at how much money is left over after paying all this stuff.
And it’s called residual income and everybody depending on what area of the country you live in and how many people in your family there’s a certain formula for it.
Now if you have 20% more than that just to give you an example if it was a thousand dollars but you have 20% more $1200 and a high FICO score you may even go up to 60 or 65% debt ratio which is unbelievable and its highest in the whole industry.
Interest rate on a conventional program you’re often going to hear Fannie Mae, Freddie Mac those are conventional. On a conventional you are gonna have a higher interest rate than either FHA or VA.
On an FHA, it’s lower than conventional and right about the same as VA they have virtually the same interest rates.
Down payment on a conventional you’re usually looking at a 3% down payment. People ask me about a conventional Mae Freddie Mac yes those are conventional.
Now if we look at an FHA an FHA is gonna require a three and a half percent down payment as long as your FICO score is 580 or above.
If it’s 579 or below it requires a 10%down payment and of course for our veterans who honorably served, we thank you! You get a zero percent down payment.
Okay so we talked about PMI, MIP insurance whatever you want to call it. But there’s also something called upfront insurance.
Now on a conventional there is no up front insurance, but those of you with a high FICO score might want to pay some, and they eliminate the monthly PMI payments forever.
So that’s a big deal and that’s only available on a conventional and it doesn’t make sense unless you have a really good FICO score. On an FHA we take the amount and multiply it by 1. 75 percent we have to add that to the amount.
Simple example – if you have a hundred thousand dollar 1. 75 percent is $1,750, we’re gonna add that, so you’d actually be borrowing $101,750 upfront insurance.
On a VA there’s a couple of different scenarios here the first time use of a VA it’s 2. 15%so on that same hundred thousand dollars.
It’s two thousand one hundred and fifty dollars added on on a second time use it’s three point three percent so that’s three thousand three hundred dollars now it doesn’t sound like the end of the world.
If you’re taking a four hundred thousand dollar and it’s a second VA that’s three point three percent that is $13,200, that may make you say mmm this other might be better.
Now though lastly if you’re a veteran who happens to be disabled 10 percent or more there is no upfront fee that there is no VA mortgage funding fee it doesn’t exist for you.
Okay seasoning from bankruptcy many Americans through the last few years they’ve had a hard time and they did file a bankruptcy.
On a conventional 4 years must have elapsed from the discharge not from when you started but from when it was finished before you’re allowed to apply for a conventional.
On an FHA it’s only two years and on a VA it’s only two years. Short sale seasoning.
Well a lot of people ask what’s a short sale?
Well at a time when people owed more than the house was worth, they often went to the bank and said, hey my house is worth three hundred I owe four hundred and the bank accepted three hundred thousand dollars.
That was called a short sale. Well if you have a conventional if you want to apply for a conventional it would be four years after a short sale.
For an FHA it’s three years must have elapsed from the time of the short sale and for a VA it’s only two years. Again Vets win, they earned.
A foreclosure well yes some people went into really hard times on a conventional we are looking at seven years before you can buy a home againOn an FHA it’s only three years and For the vets – two years from a foreclosure.
On a conventional there is actually no real time frame but the lender will take a look they just want to make sure it’s reasonable and everything is considered as a make sense situation you can be back to work for one month after or six months or a year off.
On an FHA FHA guidelines require six months back to work with pay stubs proof they’ve been back to work for six months before they’ll accept that income.
On a VA it varies perl ender some lenders will accept right back to work some might want six months or three months a lot of them will require just get past the probationary period on the job and you’re good to go.
Occupancy on a conventional you can buy for a rental, you can buy for a second home if maybe you want to live in the mountains or down by the beach on the weekends or obviously for an owner-occupied property.
For a FHA and VA it is owner occupied.hey this is Chris the mortgage pro today I'm gonna teach you how to qualify for a mortgage well there's a lot of things obviously that a lender has to look at so let's go through each and every one of them the first one that stops everybody and they get all nervous is credit now some people have outstanding credit and some people hey they have challenges maybe they had late pays you know bad things happen to good people all the time and sometimes that's the reason for a low credit score sometime sit's you don't even have enough credit so let me give you a way to think about how the lender will look at your credit they say to themselves hey if this guy can't pay a $25 a month credit card are we gonna lend them three hundred thousand dollars it's a small way of thinking don't think fold up think bigger think I'm not gonna go out to dinner I'm gonna pay my bills first you pay your bills this is what my mama taught me first you pay your bills you pay the mortgage you pay all your other debts then you figure out a wheat and steak over eaten beans it's just a way to think if you think like that in a short period of time your credits gonna be good enough to fire your landlord okay next thing lender needs to know income well do you have job stability how long you been on your job look you could get a job and get approved the next day you really can but if you change jobs every three months well that job stability isn't there they want to see some kind of stability do they want to see income of course how do they know that you can afford to make that payment they need to know that you have the income they expect it to continue for usually three years is what they're looking for obviously you can get fire you can get laid off things could change but they have a reasonable expectation of three years going forward that the income will continue so they want to see that they'd love to see a history the stronger the history the stronger the case you could fire your landlord okay next thing they want to see downpayment they call this skin in the game if you put up your own money that you worked hard for for a down payment they say hey they got some skin in the game they're serious they're committed now if you put a zero down program and we have these zero down programs they work great for some people but it makes a little bit tougher for the underwriter to say yeah they're worth taking a shot on so we want to see a down payment sometimes people put $200,000 on a down on a four hundred thousand dollar house do they have some skin in the game it makes the underwriters decision way easier doesn't it and if a person can't put a thousand or two thousand dollars down it makes the underwriter a little nervous so take advantage of the programs save some money but be sure that you're ready to show you're committed to this transaction okay something else obviously the underwriter wants to see we need an appraisal of the property we have to know the lender needs to know that if it's a four hundred thousand dollar loan that the house isn't worth three hundred and fifty thousand dollars so the collateral is the last piece of the puzzle that they have to make sure it's worth it but that also protects you as the borrower why because if you commit to buying a house for $400,000and it appraises at three hundred and eighty thousand is that something you really want to do so this is designed to protect you and protect the lender that's a big deal okay not only do they want to see your credit but on the credit report it's a list of debts what do you mean well you have your car payment on there you have your credit cards you may have child support alimony we have to look at all the debts if you make $5,000 a month but you have $2,000a month in debt doesn't leave a whole lot for a house payment so we have to look at all the numbers versus your income so that's the last thing that they're gonna want to see how much is going out already because you're going to add on this new house payment okay so those are the five things that a lender needs to see they want to see your credit are you responsible do you pay your bills on time or do you make excuses for not paying them do you have crazy debt that's out of control that you can't handle when you add on house payment do you have income and job stability how's that going do you have five new jobs or one new job it doesn't really matter if you have two or three jobs but if you change your job on a regular basis not gonna work what else they want to see how much money you've saved what's in your 401k what's in your IRA what is in your bank do you save money do you have a financial responsibility that you are showing you are a responsible borrower those are the key things they want to see and obviously the appraisal they want to make sure the collateral is solid it protects the lender and protects you so this is Chris Trapani call me I'll help you figure it out and together we're going to fire your landlord!.