People who do not have enough to pay down at closing or bear the upfront costs are looking for a favorable mortgage option. FHA loans are good but not all can qualify for them. Some lenders offer special loans or loan combinations to help first time homebuyers as well as those who have limited income. Here are some of these mortgage types currently available in the market.
Flexibility in Down Payment and Other Costs
Lenders generally require you to buy a private mortgage insurance product if you can’t put down 20% of the home value. The PMI can be avoided with a piggyback mortgage, which is nothing but a combination of a first mortgage for 80% of home value, and a second for 5%, 10%, 15%, or 20% of home value. Depending on the combinations, they are named as 80/5/15, 80/10/10, 80/15/5, and 80/20/0.
No Cost Loan
If you have not saved enough to meet costs of items like title insurance, settlement fees, appraisal, escrow fees and notary fees, then a no cost loan might be helpful. You are not required to pay for these items or any points on offer. However, you must pay a higher interest rate to avail the benefits of a no cost loan.
When a lender is willing to offer you the loan amount that equals the property value, then you can easily avoid the need of a down payment. Such loans are known as 100% loans.
A 125% loan is so called because it is 125% of property value. Sometimes, you may need to borrow more than the cost of home because the property you are buying must be repaired or renovated before you can move in. Some federal institutions might offer loans that include the cost of repair and renovation.
Flexibility in Monthly Payments
A 40-year mortgage is not uncommon these days. As the name suggests it is a fixed-rate mortgage with a term of 40 years. Your payment will go down, but you will have to pay more in interest over the life of the loan.
An interest-only mortgage may be useful for people who expect to earn more in future. During the initial few years, your payment consists of interest only, leaving your principal balance unchanged. Though your payments become extremely affordable, your loan remains unamortized until you begin to pay toward the principal amount.
Graduated Payment Mortgage
If your income is low but you expect it to grow in future, then you can opt for a graduated payment mortgage, which begins with lower monthly payments that increase gradually over a period of years. There comes a time when the payments eventually get fixed for the remaining term of the loan. For example, the payment might increase by 7% annually over a period of 5 years, after which it doesn’t increase and remains constant for the remaining term of the loan.
Other Flexible Mortgage Types
A combination loan is more or less the same as a piggyback mortgage. Borrowers are offered a combination of loan pairs in a single application with 1 down payment. The purpose of a combination loan is to avoid the higher rates of a jumbo loan. For example, you can combine a conforming loan for 70% of home value with a home equity second mortgage for 10% of home value. The rest 20% is put down by the borrower at closing.
No income loan
A no income loan lessens documentation requirement as you do not have to disclose your income to qualify for the loan.
No ratio loan
Though your income is disclosed and verified in a no ratio loan, the conventional expense-to-income ratios (or mortgage qualifying ratios) are not applied in qualifying the borrower.
When the seller provides all or part of the financing, the seller assumes the role of a lender. This arrangement is usually referred to as owner financing, purchase money mortgage or seller financing.