To Buy or not to Buy? Top Reasons People Become Homeowners

Happy family at home with their dogs

If you’re on the fence about buying a home, you’ve likely done a lot of research on interest rates and home prices, and have heard about lack of inventory locally and across the U.S. What you’re hearing may be enough to make you want to put your dream of homeownership on hold.

Not so fast!

Think about all the reasons that homeownership may be right for you, including the fact that if you wait even a year, it’s predicted that you’ll face higher home prices and interest rates, and ultimately a higher monthly mortgage payment. Here are a few of the top reasons people buy homes.

Pride of ownership. You can paint the walls any color you desire, attach permanent fixtures, and decorate your home according to your own taste. Home ownership gives you and your family a sense of stability. It’s an investment in your future. And a lot of people would say that the independence and sense of accomplishment that owning a home brings is an essential part of their way of life.

Build equity. Real estate moves in cycles, but over the years, real estate has consistently appreciated. As property value increases, you build equity in your home and your home becomes worth more than you owe. If you are renting a home, your landlord builds this equity every time you pay rent, and you get nothing in return.

Have more space. A lot of renters find they are short on space. They have few closets, no yard to call their own, and no attic, garage or basement. Many renters even pay an additional fee for a storage space on or off the property. Homeowners are often glad to have extra storage space, a place for their cars, and a yard to host barbecues, play with their kids or to run around with a new dog!

Make room for Fido. A recent survey by SunTrust Mortgage found that a third of millennials who had already purchased their first home said they were influenced by the need to have space for a dog. Not only do you get more space for your pet with a yard to play in and room to roam about, you can eliminate the pet deposit and monthly fee that a landlord tacks on to your rent payment.

Upgrade to your heart’s content. A lot of renters are not rewarded for upgrading their homes. The landlord may benefit from a fresh coat of paint, new flooring and overall upgrades that make the space a home, but there is no reward for the renter who sinks money into projects that benefit someone else’s pocketbook.

Keep your distance. Even if your new home has a small yard, if you buy a single-family home, you don’t have to deal with heavy-footed clomping walker above you, or the loud talkers below you.

There’s no single reason that makes homeownership the right option. But when you consider all the reasons that are important to you, you really have a reason to buy a home. What makes you want to be a homeowner? Call us today to get on the road to making your dream a reality!

Decisions, decisions – FHA or Conventional Loan?

Piggy Bank and Scales of Justice - 3D Rendering

It’s easy to feel overwhelmed when you’re considering a home loan. The last thing you want to feel is conflicted and confused! We’re here to help. One of the questions we hear most often is “What is the difference between a conventional loan and an FHA loan?” Let us tell you.

FHA stands for Federal Housing Administration, which means that FHA loans are backed by the government. Originally, they were created to help make homeownership more accessible to buyers with damaged credit or minimal savings. Over time, they became popular across all income levels and especially with first time buyers.

Conventional loans are your “basic loan.” They must conform to specific guidelines, but they are not backed by the government. They also are very popular.

Both loans offer you flexibility in type (fixed rate vs adjustable rate) and term length (30 years or 15 years).

There are some key differences between the two loan types.

FHA vs Conventional Credit Guidelines

FHA Credit Score Requirements
FHA has lower credit score requirements. A credit score of 580 or over allows you to make a down payment of just 3.5%. If your score is between 500-579, and you need to put down at least 10%. Buyers with credit scores under 500 likely won’t be able to qualify.

Conventional Credit Score Requirements
Exact credit score numbers needed vary from lender to lender and are impacted by other factors, but as a “rule of thumb,” 620 is generally the lower limit of conventional credit requirements.

Down Payment Requirements
One of the biggest myths about mortgage loans is that you need to put 20% down to buy a home. There are options available to put as little as 3% down.

FHA Loan 3.5% Down Payment
With an FHA loan, you can put as little as 3.5% down. For many, this is the same amount as you’d put down for a rental deposit.

Conventional Loan 3% Down Payment
With a conventional home loan, you can go as low as 3% with the program’s “conventional 97 loan.”

Private Mortgage Insurance for FHA and Conventional
If you put less than 20% down using any loan except a VA loan, you must have private mortgage insurance. Private mortgage insurance (PMI) protects lenders in the event that borrowers with low equity default on their loans.

FHA Loans
FHA loans insurance is an upfront amount paid at closing, with a monthly mortgage insurance premium. To remove this, borrowers must refinance when they have 20% equity in their homes. 

Conventional Loan PMI
PMI is simple with conventional loans. Once you have 20% equity in your home, PMI drops off. You can get there by putting 20% down on the house for your down payment, or by paying PMI until you hit 20% equity with your monthly mortgage payments. Your lender is legally required to drop your PMI automatically at 22%, or per your request at 20%.

Income Requirements
Debt to Income (DTI) is the percentage of your gross monthly income that will go toward paying off debt Lenders use the following formula to work out this number:
monthly expenses ÷ pre-tax monthly income = DTI %

FHA Debt to Income Requirements
With FHA home loans, some lenders may offer a bit more flexibility if the borrower’s finances and credit are good.  However, you want to choose a lender who has your best financial picture in mind, so working with someone who wants you to get your DTI more in line is a positive factor for your long-term financial security.

Interest Rates
FHA loans tend to come with lower interest rates than conventional loans, likely due to the fact that FHA borrowers have historically been less likely to pay off their mortgage early than conventional borrowers. However, if interest rates are your only factor, the difference is usually negligible, and you can easily pay more in PMI during the life of the loan.

Property Eligibility for FHA and Conventional Loans

FHA Property Guidelines
FHA home loans are backed by the government and are designed to help families, so they place more restrictions on the type of house that qualifies.
• Must be occupied by the buyer
• Must be your primary residence
• Must be occupied within 60 days of closing
• Must be assessed for safety with an additional home inspection
• Must be under the capped lending amount

Conventional Mortgage Property Guidelines
Conventional loans have fewer restrictions. Second homes and investment properties both qualify, and don’t require special inspections.

They have a capped loan amount called the conforming loan limit, which your lender can share with you.

Conventional 97 Property Qualifiers
However, if you use a conventional 97 loan and put just 3% down, there are additional requirements:
• The property must be a one-unit, single family home, co-op, PUD, or condo
• The property will be the buyer’s primary residence
• The buyer (or one of the buyers) can’t have owned a house in the last 3 years
• The loan amount is at or under the capped amount

Which Mortgage Loan is Right for You?
There’s no definitive answer here. Your lender will help you to review your finances to determine your best choice. You may want to consider the following:

An FHA loan may be best if:
• You have lower or no credit
• You have a lot of debt
• You already have an FHA loan and want to refinance
• You don’t plan on staying in the home long enough to hit 20% equity
• You have a bankruptcy or foreclosure in your past

A conventional loan may be best if:
• You have fair to excellent credit
• You have a reasonably low DTI ratio
• You need to be able to make the smallest possible down payment
• You want to be able to dump PMI without having to refinance
• You’re buying an investment property or second home

Remember, this is just a guideline to these two loan types. At Universal Lending we work to educate and inform our borrowers so they make the best financial decisions possible to keep themselves and their families financially secure while enjoying the benefits of homeownership.

Why Work with an In-Person Lender

Black couple standing on residential street with agent

With a world of online options at your fingertips, why should you work with a lender in-person when you are buying your first home, moving again, or refinancing? Here are a few reasons it makes sense to work with someone local.

An in-person lender understands the rules of where you are buying your home.
Different states have different rules, when it comes to taking out a mortgage. When you work with lenders in-person, you know they are licensed in your state, they have passed state-specific tests and they are experts in your area.

In-house underwriting means easier transactions.
When you work with a lender in-person, you know that any questions you have are answered immediately, rather than being pushed through several channels. The lender also can keep you updated on where your loan is in the process and what may be coming up. This expedites the process and makes the experience smoother.

You know you are applying for a loan.
When you apply for a mortgage online, you may not be applying for a loan at all. You may be feeding your personal information into a database where it is sold to loan officers, mortgage brokers, and even insurance brokers and other sales people. Rather than receiving a phone call from one company, you may find yourself fielding phone call after phone call. If you do choose an online mortgage, make sure you are working with an actual mortgage company.

It is in your best interest to watch your interest rates.
Online lenders often approve people with lower credit scores than traditional lenders will. Taking out a mortgage that you cannot afford is never a good idea. Lower credit scores lead to higher interest rates. An honest and transparent in-person lender may help a borrower who should put off the purchase of a home stay financially secure.

Getting a loan is personal.
You want to work with someone who knows you and understands your needs, and who stays with you every step of the way. When you work online, you send an email and wait for a reply. Nothing about that suggests you have access to someone who understands your needs now and who understands your needs when they change. Having the ability to call your loan officer directly or sit down and meet face-to-face can help you understand that your loan isn’t just personal to you, it’s personal to the person with whom you are working. You are part of a team.

At Universal Lending, we keep things personal. Contact us to see why local is better.