Buying a home: Do you really need 20% down?
There’s a widespread perception
that you need to put at least 20
percent down to buy a home.
Fortunately for home buyers that’s
just not true.
In fact, even in today’s mortgage
market, it’s still possible to buy a
home with a down payment of five
percent or less. You can even get a
mortgage with zero percent down
through certain programs, which
aren’t as hard to qualify for as you
might think.
RURAL DEVELOPMENT –
A ZERO DOWN OPTION
You can get a zero-down
payment mortgage through the
USDA Rural Development. There
are income restrictions; a family of
four or less can earn no more than
$74,750 and a family of five or more
can earn as much as $98,650.
USDA’s definition of rural is quite
broad and includes the city of
Yankton and all of the communities
in the Yankton market.
VA – ANOTHER ZERO
DOWN OPTION
You typically have to have served
or be serving in the military in order
20 n TODAY’S HOME – SPRING 2013
to qualify for this option.
FHA DOWN PAYMENT
AS LOW AS 3.5%
This program allows you to
obtain a mortgage with a low down
payment if you are not eligible for a
Rural Development or a VA loan.
CONVENTIONAL MORTGAGES
These programs require as little as
three percent down.
RATE LOCKS
What are mortgage rate locks and
how do they work? They are a
written promise by a lender to offer a
certain interest rate for a specific
length of time, usually 60 days or
less. The rate lock doesn’t just
guarantee the interest rate, but also
specifies other aspects of the loan,
i.e., the term of the loan, the down
payment, etc. Options to lock for a
timeframe longer than 60 days are
available but additional fees or higher
rates may apply. You also have the
option to “float” your interest rate. If
you think that interest rates will drop
prior to the closing of your mortgage
loan you may want to consider
“floating” your rate rather than
locking your rate.
CREDIT SCORES –
WHAT AFFECTS YOUR
CREDIT SCORE
Credit scores are very important
in the mortgage loan approval
process. Making your monthly
payments on time is a very important
factor in the scoring process but there
are additional factors that can impact
your score. You need to know what
these factors are and what you can
do to improve your score. At First
National Bank South Dakota we can
provide you with helpful information
to improve your scores.
The credit score is based
on five factors:
1. Payment history affects 35% of
your credit score. Paying on time can
mean the difference between an
average and an exceptional score.
2. Amount borrowed compared
to your available credit affects 30%
of your score. Ideally you want to
borrow less than 33% of your
available balances. It is better to owe
a smaller amount on several cards
than to max one card to its limit.
3. Length of credit history
comprises about 15% of your score.
Avoid opening new credit cards
because the lender is offering an
initial low interest rate.
4. Inquiries and new debt
accounts for about 10% of your
score.
5. Type of debt accounts for
approximately 10% of your score.
Installment debt, such as a car loan,
is looked upon more favorably than
revolving debt such as a credit card.
Which Mortgage Option is Right for
You?
Obtaining a mortgage loan can be
confusing with all the various types
of financing available. In addition,
credit scores play a much greater role
in today’s financing than they have in
past years. To assist you in obtaining
the mortgage loan that is right for
you, contact Al Schumacher or
Alison Lange at First National Bank
South Dakota, 665-9611. They will
discuss the options available and
which best fit your needs. With 49
years of combined lending experience
they can assist you and make the
process smooth and easy.
n Editorial provided
by First National Bank South Dakota