Many people are not taking advantage of these historical low mortgage rates because they do not believe they would qualify for a mortgage or that they don’t have enough equity to refinance or enough money saved for the down payment. Do not make that mistake. It is true that today is significantly harder to qualify for a mortgage than before, but don’t let that discourage you. If done correctly from the beginning, most people can follow certain steps to qualify for a mortgage.
At HomeStart Capital, as one of the best Mortgage Companies Houston has to offer, we have dozens of ways to approve most loans in today’s environment with no Mortgage Insurance.
In addition, many first time home buyers confuse Home Owners Insurance or HOI, with Mortgage Insurance MI.
a) Home Owners Insurance is designed to protect the home owner in case of a fire or most unforeseen damage to the property.
b) Mortgage Insurance is designed to protect the investor in case that the borrower defaulted on the mortgage payments, yet it is paid by the borrower every month.
Here are three simple ways to avoid paying mortgage insurance completely:
1) As most people know, the most common way to avoid paying mortgage insurance when purchasing or refinancing a home is to have 20% equity or down payment. Since most people are unable to come up with that much money on their own, that 20 % can be compensated with a gift from a family member. For the record, the process of a refinance and a purchase is practically identical. In most instances, the only difference on these two transactions is that in a refinance the buyer and the seller are the same person. If you cannot come up with that 20%, do not worry, we have ways to approve your loan with as little as 5 % equity or down payment.
2) The second, most realistic way to avoid paying Mortgage Insurance from the beginning is to divide your loan into two separate loans with as little as 5 % equity or down payment.
The first loan is calculated as 80% of the sales price or appraised value (On a purchase it is calculated on the lesser of the two). The second loan can be 5, 10, and even 15% of the sales price of appraised value, therefore, you can purchase or refinance a home with as little as 5 % equity or down payment. This is one of the most popular loan products in today’s environment, not only because you never pay one dollar of mortgage insurance, but it also give you the ability to waive escrows. This is an option with many advantages and I will talk about it them in detail in another blog article.
3) The third and last easy way to avoid mortgage insurance is not an option for everyone, but it is for a lot of our national heroes. If you or your spouse have ever served for the armed forces you may qualify for a VA loan. These loans are one of the best ways to obtain a mortgage. It is one of the very few loans in today’s environment in which you can borrow up to 100 % of the loan without paying any Mortgage Insurance. There are many other benefits of a VA Home loan such as:
- No down payment (unless required by the lender or if the purchase price is more than the reasonable value of the property).
- Ability to finance the VA funding fee (plus reduced funding fees with a down payment of at least 5% and exemption for veterans receiving VA compensation).
- Closing costs are comparable with other financing types (and may be lower).
- No mortgage insurance premiums.
- An assumable mortgage.
- Right to prepay without penalty.
- Buyer informed of reasonable value.
- Negotiable interest rate.
- For homes inspected by VA during construction, a warranty from builder and assistance from VA to obtain cooperation of builder.
- VA assistance to veteran borrowers in default due to temporary financial difficulty.
If you would like to learn more about any of these options, call your Professional Mortgage Consultant today.