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The differences between FHA, VA, and USDA mortgages

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When you get a mortgage in Knoxville, there are several options you can choose from, including FHA, VA, USDA, and conventional mortgages. And the one you pick will determine how big of a down payment you’ll need, what credit score you should have, and all the other requirements you’ll need to meet, as well.

But choosing the right type of mortgage can be difficult — especially if you’ve never bought a home before.

Are you confused about your mortgage options? Maybe need dome help deciding which program is the best fit for your upcoming home purchase? Here are your choices:

FHA mortgages

FHA mortgages are insured by the Federal Housing Administration. They allow for lower credit scores than most other loans. In fact, with some lenders, you may be able to get approved with a credit score as low as 500 (as long as you make at least a 10% down payment).

The one caveat with FHA loans is that they require a Mortgage Insurance Premium both at closing and as part of your monthly payment. The exact cost of this varies based on your loan balance and down payment.

Minimum down payment: 3.5%

Minimum credit score: 500 to 580, depending on down payment size

Who they’re best for: First-time homebuyers, low-credit score buyers

VA loans

VA loans are mortgage loans that are guaranteed by the Department of Veterans Affairs. Only homebuyers who are military veterans, current military members or their spouses can qualify for a VA loan. Applicants also need to meet certain service requirements, as well as obtain a Certificate of Eligibility from the VA.

VA loans come with some of the lowest interest rates around, and there are also no minimum credit score or down payment requirements.

Minimum down payment: Zero

Minimum credit score: None

Who they’re best for: Veterans, military members, spouses of veterans and military members

USDA loans

USDA loans are mortgages backed by the U.S. Department of Agriculture. They’re reserved for buyers in more rural parts of the country, and they’re only available in certain areas. Borrowers also need to fall under the set income threshold for their community. Like VA loans, USDA loans require no down payment. You can search for the eligibility of a particular address here: https://eligibility.sc.egov.usda.gov/eligibility/ If you don’t want to go through the hassle of searching every home we can set you up on a search that shows you only homes in areas that are eligible for USDA loans.

Minimum down payment: Zero

Minimum credit score: Typically 640, though it varies by lender

Who they’re best for: Rural homebuyers, low-income buyers, buyers who have no down payment savings

Conventional mortgages

Conventional mortgages are loans issued without any government insurance or backing, like those mentioned above. Because of this, lenders tend to be more strict about which borrowers they’ll approve for these loans.

Typically, conventional mortgages require higher credit scores than other mortgage options, though it varies by lender. The minimum down payment is just 3%, but if you go that low — or make any down payment under 20% — you’ll typically have to pay for Private Mortgage Insurance. Unlike the mortgage insurance on FHA loans, PMI is cancellable after you’ve paid off enough of your loan.

Minimum down payment: 3%

Minimum credit score: Typically 620, though it varies by lender

Who they’re best for: Buyers with good credit

Which will you choose, an FHA, VA, USDA, or conventional mortgage?

If you’re still not sure whether an FHA, VA, USDA, or conventional mortgage is the best fit for your home purchase in Knoxville, talk to a loan officer or mortgage broker in your area. They can help point you toward the best option for your budget and goals. We’re happy to recommend some excellent mortgage professionals so just give us a shout!

Call/Text me, Troy Stavros with CornerStone Realty Associates at 865-999-0925 today!

Let Me Shatter the Housing Affordability MYTH For You

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It seems you can’t find a headline with the term “housing affordability” without the word “crisis” attached to it. That’s because some only consider the fact that residential real estate prices have continued to appreciate. However, we must realize it’s not just the price of a home that matters, but the price relative to a purchaser’s buying power.

Homes, in most cases, are purchased with a mortgage. The current mortgage rate is a major component of the affordability equation. Mortgage rates have fallen by over a full percentage point since December 2018. Another major piece of the affordability equation is a buyer’s income. The median family income has risen by 3.5% over the last year.

Let’s look at three different reports issued recently that reveal how homes are very affordable in comparison to historic numbers, and how they have become even more affordable over the past several months.

1. National Association of Realtors’ (NAR) Housing Affordability Index:

Here is a graph showing the index going all the way back to 1990. The higher the column, the more affordable homes are:Busting the Myth About a Housing Affordability Crisis | MyKCM

We can see that homes are less affordable today (the green bar) than they were during the housing crash (the red bars). This was when distressed properties like foreclosures and short sales saturated the market and sold for massive discounts. However, homes are more affordable today than at any time from 1990 to 2008.

NAR’s report on the index also shows that the percentage of a family’s income needed for a mortgage payment (16.5%) is dramatically lower than last year and is well below the historic norm of 21.2%.Busting the Myth About a Housing Affordability Crisis | MyKCM

2. Black Knight’s Mortgage Monitor:

This report reveals that as a result of falling interest rates and slowing home price appreciation, affordability is the best it has been in 18 months. Black Knight Data & AnalyticsPresident Ben Graboske explains:

“For much of the past year and a half, affordability pressures have put a damper on home price appreciation. Indeed, the rate of annual home price growth has declined for 15 consecutive months. More recently, declining 30-year fixed interest rates have helped to ease some of those pressures, improving the affordability outlook considerably…And despite the average home price rising by more than $12K since November, today’s lower fixed interest rates have worked out to a $108 lower monthly payment…Lower rates have also increased the buying power for prospective homebuyers looking to purchase the average-priced home by the equivalent of 15%.”

3. First American’s Real House Price Index:

While affordability has increased recently, Mark Fleming, First American’s Chief Economist explains:

“If the 30-year, fixed-rate mortgage declines just a fraction more, consumer house-buying power would reach its highest level in almost 20 years.”

Fleming goes on to say that the gains in affordability are about mortgage rates and the increase in family incomes:

“Average nominal household incomes are nearly 57 percent higher today than in January 2000. Record income levels combined with mortgage rates near historic lows mean consumer house-buying power is more than 150 percent greater today than it was in January 2000.”

Bottom Line

If you’ve put off the purchase of a first home or a move-up home because of affordability concerns, you should take another look at your ability to purchase in today’s market. You may be pleasantly surprised!

Ready to start the process? Need help getting pre-approved? Call or text me, Troy Stavros with CornerStone Realty Associates today at 865-205-6899!

Should I Refinance My Home? Here’s What You Need To Know…

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Should I Refinance My Home? | MyKCM

With the recent lower interest rates, many homeowners are wondering if they should refinance.

To decide if refinancing is the best option for your family, start by asking yourself these questions:

Why do you want to refinance?

There are many reasons to refinance, but here are three of the most common ones:

  1. Lower your interest rate and payment – This is the most popular reason. If you have a 5% interest rate or higher, it might be worth seeing if you can take advantage of the current lower interest rates, hovering below 4%, to reduce your monthly payment and overall cost of the loan.
  2. Shorten the term of your loan – If you have a 30-year loan, it may be advantageous to change it to a 15 or 20-year loan to pay off your mortgage sooner.
  3. Cash-out refinance – With home prices increasing, you might have enough equity to cash out and invest in something else, like your children’s education, a vacation home, or a new business.

Once you know why you might want to refinance, ask yourself the next question:

How much is it going to cost?

There are fees and closing costs involved in refinancing, and Lenders Network explains:

“If you were to refinance that loan into a new loan, total closing costs will run between 2%-4% of the loan amount.”

They also explain that there are options for no-cost refinance loans, but be on the lookout:

“A no-cost refinance loan is when the lender pays the closing costs for the borrower. However, you should be aware that the lender makes up this money from other aspects of the mortgage. Usually by charging a slightly higher interest rate so they can make the money back.”

If you’re comfortable with the costs of refinancing, then ask yourself one more question:

Is it worth it?

To answer this one, we’ll use an example. Let’s assume you have a $200,000 home loan. A 4% refinance cost will be $10,000. If you want to lower your interest rate from 6% to 4%,  then refinancing is going to save you $244 per month. To break even ($10,000/$244), you need to continue owning your home for over 40 months.

Now that you know how the math shakes out, think about how much longer you’d like to own your current home. If you plan to stay for more than 3 years, then maybe it is advantageous for you to refinance.

If, however, your current home does not fulfill your present needs, you might want to consider using your potential refinance costs for a down payment on a new move-up home. You will still get a lower interest rate than the one you have on your current house, and with the equity you’ve already built, you can finally purchase the home of your dreams.

Bottom Line

There are many opportunities for growth in the current real estate market. To find out what’s right for your family, let’s get together to help you understand your options and guide you toward the best decision. Contact me, Troy Stavros with CornerStone Realty Associates at 865-999-0925 today!

Guessing At How Much Home You Can Afford is a Mistake. Get Pre-Approved!

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Stop Wondering What Your Budget Is & Get Pre-Approved! | MyKCM

In many markets across the country, the number of buyers searching for their dream homes outnumbers the number of homes for sale. This has led to a competitive marketplace where buyers often need to stand out. One way to show that you are serious about buying your dream home in Tennessee is to get pre-qualified or pre-approved for a mortgage before starting your search.

Even if you are not in an incredibly competitive market, understanding your budget will give you the confidence of knowing whether or not your dream home is within your reach.

Freddie Mac lays out the advantages of pre-approval in the ‘My Home’ section of their website:

“It’s highly recommended that you work with your lender to get pre-approved before you begin house hunting. Pre-approval will tell you how much home you can afford and can help you move faster, and with greater confidence, in competitive markets.”

One of the many advantages of working with a local real estate professional is that many have relationships with lenders who will be able to help you through this process. Once you have selected a lender, you will need to fill out their loan application and provide them with important information regarding “your credit, debt, work history, down payment and residential history.”

Freddie Mac describes the ‘4 Cs’ that help determine the amount you will be qualified to borrow:

  1. Capacity: Your current and future ability to make your payments
  2. Capital or cash reserves: The money, savings, and investments you have that can be sold quickly for cash
  3. Collateral: The home, or type of home, that you would like to purchase
  4. Credit: Your history of paying bills and other debts on time

Getting pre-approved is one of many steps that will show home sellers that you are serious about buying, and it often helps speed up the process once your offer has been accepted.

Bottom Line

Many potential homebuyers in Knoxville overestimate the down payment and credit scores necessary to qualify for a mortgage. If you are ready and willing to buy, you may be pleasantly surprised at your ability to do so today. Contact me, Troy Stavros with CornerStone Realty Associates today and I can help you get this process started by recommending you to some amazing lenders.

3 Questions Every Home Buyer Should Know The Answer To

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VIDEO: There are 3 questions every potential home buyer should know the answer to. I give you the questions…and the answers. There are many potential home buyers still renting because they believe they can’t qualify for a mortgage. This information could be a game changer for them, as their is a lot of misinformation out there. Have questions? Contact me at 865-777-9191. Here is the link to the USDA site: http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do