 |
 |
 |
|
Most homebuyers fall into this category of loan. In a conventional loan, a homebuyer can qualify for a loan equal to 28% of their gross monthly income. Their total revolving debt should not exceed 36%. The trick to a conventional loan is that good credit and large down payments will allow a lender to exceed the qualifying guidelines. When a borrower puts down less than 20% down payment in a conventional loan they are required to pay PMI as explained earlier. There are new types of loan programs that allow borrowers to avoid PMI. These programs are called combo mortgages. A combo mortgage avoids PMI by using a second mortgage and a borrower's equity to equal the 20% down payment. For example: If a homebuyer purchases a $200,000 home and has only a 10% (or $20,000) down payment, a combo mortgage has a second mortgage equal to 10% so that the home buyer has the required 20% equity to avoid PMI on their primary mortgage. The advantage of the combo mortgage is that the second mortgage offers the homebuyer an additional tax break - PMI is not tax deductible. The payments for a combo mortgage and a mortgage with PMI are about the same. Homeowners also pay to their equity with the combo mortgage. There are combo mortgages for buyers with down payments of 5%, 10% and 15%. Some creative lenders have 0% down payment loans that avoid PMI, but the rates often are not worth the savings. When a homebuyer's loan exceeds $265,000, then that loan is called a jumbo loan. Jumbo loans cost slightly more - 1/8 to 1/4 percent. The bottom line to a conventional loan is
that money and a good credit history allow a lender to offer flexibility. |
|
|
