Congratulations on deciding to buy a home! The next step is to talk to a lender to find out about mortgage programs that will help you get into a home the best way for your pocketbook. It's not just as easy as shouting "Show Me the Money!". Your choice of mortgage program can affect your monthly budget.
When you talk to a lender, you will have a talk about what type of loan you are eligible for. Each type of loan program has their own costs and benefits, which you need to be aware of as they affect closing costs and monthly payments. I am going to speak in generalities here, your experience may vary.
The most common program home buyers in La Crosse use is FHA. It means "Federal Housing Administration". It is a department of Housing and Urban Development. One of FHA's duties is to promote home buying and lending and to that end, it guarantees loans made by lending institutions against defaulting borrowers. FHA sets up the rules under which a buyer can get a loan. If you don't fit under these guidelines (rules), the lenders won't make a loan. The highlights of this loan are the 3.5% down payment. The lowlight is the mortgage insurance payment that you will pay for the rest of the loan's life. FHA requires that the home be in basic livable condition, so tell your Realtor which loan you will be applying for so she can be on the outlook for disqualifiers like peeling paint and adequate hand rails.
The next most common is the conventional program. You will need to make at least a 5% down payment, and maybe more to get rid of the mortgage insurance payment. Again, talk to your lender as there are some other advantages and disadvantages to this program. The home condition requirements are less strenuous, therefore you might be able to buy more of a fixer upper to gain more equity when you buy. As any good realtor will tell you, you make your money on the sale of the home when you buy it.
If you are a veteran and you qualify, you can get a loan guaranteed by the Department of Veteran Affairs. This allows you to borrow a certain amount with no or little money down and can have closing cost assist. There are higher requirements on the home condition and there will be a special appraisal. In some cases, the seller is required to pay some closing costs. Some sellers might not accept a DVA loan because of this.
If you want to buy out in the boonies, you may qualify for a Rural Development Loan. It is guaranteed by the USDA (United States Department of Agriculture) to encourage home ownership in less populated areas. This program allows for no down payment for your purchase. This doesn't mean that you don't need any money to purchase with this loan. Read here for more information. There are stricter requirements for housing condition, so beware that there might be some issues you need to negotiate in the closing period.
So, say you find the ideal home, but it needs a few fix ups. Paint, carpet, maybe new appliances or a water heater. Maybe it doesn't quite qualify for a regular FHA loan, but the price is right and it's the perfect house for you. There's a program for that!! A 203k program will allow you to borrow money for the home purchase and also some money for repairs. The catch you ask? You can only borrow up to what you have been approved for. Meaning, if you are approved for a $100,000 loan, you can't buy a $100,000 home and request $20,000 for home improvements. All money asked for must be under the amount you are approved for. There are more hoops to jump through to get everything done, and you must get all repairs done within a certain amount of time after closing on the home.
There are also first time home owner programs out there for you, mostly through the state and federal government and some by particular lenders. It usually involves home owner education programs. In Wisconsin, the program is called WHEDA, which stands for Wisconsin Housing...er..um..something, something, something. Ask your lender. They will know what it stands for. You can get low to no down payment programs and/or programs to help out with closing costs. Make sure you thoroughly understand these programs thouroughly as it can lead to nasty surprises when you want to sell your home. Trust me. This comes from personal experience. It was kind of nasty at the time. Minnesota also has a first time home buyers program also.
You may find other wonderful and quirky mortgage products in your research that you will be doing. If you have any questions, don't hesitate to ask me or better yet, ask your lender.
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