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Financing Options for Custom Homes
A new home is the costliest purchase many individuals will make in their lifetime, and there are two types of buyers. One type dreads the idea of carrying debt and paying interest on a loan; the other group wants to conserve as much of their own cash as possible and use the concept of leverage to buy their dream home. If you have the cash and don’t like debt, then by all means pay cash for your home. As a bonus for paying cash, you may be in a better position to negotiate a lower purchase price. Foreign investors are likely to experience difficulty obtaining a mortgage loan and frequently engage in all-cash transactions. However, if you choose to obtain a mortgage, there are a variety of options that may be available to you. If you’re in the market to purchase a new home, make an appointment and speak to a loan officer as soon as possible. That simple step can remove much of the anxiety from your decision-making process. You’ll know right away the maximum amount of loan and down payment that the lender will most likely approve. Once you have that information, you can start looking at properties in your price range. The loan officer’s job is to find the mortgage product that’s best for you; this is not a case where one product fits all.
FHA
The Federal Housing Administration (FHA) insures loans made by lenders who adhere to its stated underwriting requirements. Lenders like to originate this type of loan, because the federal government reimburses them if they lose money on a transaction through a foreclosure or short sale. Buyers like this loan because they need a smaller down payment and lower credit score than what's required with some of the other types of mortgage loans. The maximum loan amount is determined on a county-by-county basis, and the Travis County 2012 value was $288,750. That relatively low ceiling disqualifies this as an appropriate product for the Austin luxury homes that you'll find in the Spanish Oaks community. However, limits can adjust every year so speak to your mortgage specialist before discarding the possibility.
VA
The U.S. Department of Veterans Affairs (VA) guarantees lenders that they will be reimbursed by the federal government if they lose money on a transaction due to a foreclosure or short sale. The maximum amount of the reimbursement is 25 percent of the VA loan limit, which in 2012 was $417,000 for the majority of the country, including the entire state of Texas. Lenders like these loans because of the guaranty, and borrowers like them because no down payment is required. Active military and honorably discharged veterans are eligible to apply. If you're interested in financing a more expensive home, some lenders may offer what they call a VA Jumbo loan with maximum amounts of $1 million or more. Lenders will likely require a down payment of 25 percent or more on any amount over $417,000, which helps compensate them in case of a loan default.
Conventional
Conventional loans have no government involvement, but lenders originating these types of loans may be able to collect at least partial reimbursement from a third party if they suffer a loss on a loan. Borrowers, who put down less than 20 percent of the loan amount, pay for private mortgage insurance (PMI), which is added to the monthly mortgage payment. If the loan defaults, the lender requests partial reimbursement from the private mortgage insurance company.
Jumbo
Fannie Mae and Freddie Mac are the two government sponsored enterprises that buy the majority of FHA, VA and conforming conventional loans. Conforming loans are ones that follow the Fannie and Freddie guidelines including a 2012 national maximum loan amount of $417,000. Certain parts of the country, but not Texas, may have higher limits. Interest rates are lower for conforming loans. Consequently, if you need a larger amount of financing, your interest rate on this jumbo loan will be higher, and you may be required to make a down payment of 25 percent or more.
Builder's Financing
When you are purchasing a pre-construction home, you're sure to be referred to a builder's lender. You are under no obligation to use their services for the mortgage loan, although the developer may require that they prequalify you. However, if you do agree to let them originate the loan, you may receive upgrades on select features of the home. Always speak to multiple lenders, compare the quotes and pick the deal that's best for you.
