Vail Daily column: What does it take to buy a home?
Buying a home anywhere is a challenge for most people, and sorting out the myths from reality as to what is required can be a challenge as well.
As the real estate market seems clearly on the road to recovery and it’s the season when locals are moving around, one of the questions I hear most often is: “How much do I have to put down?” The answer is: “It depends.”
The type of property, your financial situation, your intention for occupying the property, your credit and income all are factors particularly if you don’t have or don’t want or have 20 percent to put down.
The least you can put down is zero if you and the property meet certain requirements. The first 100 percent loan-to-value program is a United States Department of Agriculture rural housing loan. Eagle County is considered rural enough to qualify. The requirements include your income being below $91,000 for a family of two, not owning any property at the time of closing of the purchase, having good credit and pursuing a property that is not a condo.
There are currently only a couple of eligible condo complexes here.
Townhomes, duplexes and single-family homes will work, though. There are a lot of ins and outs, and these loans are not easy to get approved for, but they can work wonders for some people. Generally, these loans are limited to the mid-$300,000 range because of the income caps.
VA Loan program
Another loan program that goes to 100 percent loan-to-value is the VA loan for eligible veterans. These loans can be a great deal for eligible veterans and are certainly a perk they have earned serving our country. Again though, a limitation applies to condos, they must be approved by the Federal Housing Administration, but townhomes and duplexes are eligible as well as single-family residences.
FHA Loan Program
The next option for the down-payment challenged is a FHA loan, which generally requires 3.5 percent down payment. There are no upper income limits on an FHA, and you can, in theory, borrow up to $625,500. FHA loans are only for owner occupied properties.
FHA can be some of the most liberal in terms of income qualifications and credit history. All this does is come with a price, though, and that price is a fairly high mortgage insurance premium up front and due at closing in an amount of 1.75 percent of the loan amount. The upfront premium can be financed, though, or worked into a slightly higher rate. There is also monthly mortgage insurance.
Home Ready Program
Another option is the Home Ready program, which requires 3 percent down but is limited to first-time homebuyers and there are income caps to be eligible.
Beyond that, one gets into what is known as “conforming conventional financing,” which is what most homeowners use. Typically, one needs from 5 to 20 percent down payment, although for second-home buyers, 10 percent down is usually the minimum. If you are buying a rental property, then plan on 20 to 25 percent down.
If your loan amount is between $417,000 and $625,000, then you will generally need 10 to 20 percent down payment if you are located in a region that is recognized by Fannie Mae as a high cost area unless you opt for a FHA loan with the requisite mortgage insurance.
If you are looking at a loan amount higher than $1,000,000, then you might need 30 to 40 percent down.
If you are looking at buying a unique property such as a unit in a condo-tel, then you will get what is known as a portfolio loan. These loans generally require 20 to 30 percent down, depending on the loan amount, property type and terms. You probably will not find a 30-year fixed term, but rather something fixed for five to seven years with an adjustable rate thereafter and amortized over the course of 30 years.
There are a multitude of loan options out there and consumers need professional guidance to maneuver through the maze and get the loan best suited for them.
Chris Neuswanger is a mortgage loan originator with Macro Financial Group in Avon and may be reached at 970-748-0342. He welcomes mortgage related inquiries from readers.
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