One of the common types of mortgages are conventional loans – both insured and uninsured. The difference is whether you have 20% down or not. If you do not have 20% down, your mortgage is considered insured and you will have a mortgage insurance payment to make in addition to your principal, interest, taxes and homeowners insurance.
The mortgage insurance companies have been hit hard by all of the foreclosures in the last year. Because of this, the rules keep changing for mortgages!! If you are looking at buying a home in the Minneapolis/St. Paul area, you need to know if you are in a declining market – your loan officer can give you that information. It changes frequently – usually on a quarterly basis. Right now most of the mortgage insurance companies are listing the metro area in a declining market and that means that you will need more money for down payments. There are a couple of options for 5% down, most of the companies require between 8 and 10% down. Every company has different requirements for mortgage insurance from down payment to credit scores. If you are buying outside the metro area, you may not be in a declining market and then you can get a conventional loan with as little as 3% down.
Most conventional loans require 10% down if you are buying a condo and some also require that if you are buying a townhome. Also several townhomes in the metro area are legally condo's, so make sure you are aware of that as you are looking at townhomes.
Minnesota Housing eliminated conventional insured loans as one of their options today due to the current market conditions. They will reinstate that option when the markets stabilize. Conventional mortgages are still an option for them – but you have to have 20% down.
The plus to conventional loans with mortgage insurance is that when you have reached 78% equity in your house, you can ask the mortgage company to release the mortgage insurance. You have to live in the home, have been on the mortgage for at least two years and then have an appraisal done to show the equity in the home. FHA loans require you to pay your mortgage down to 78% of the original purchase price. Also right now, the IRS allows you to use the mortgage insurance payments as a tax deduction.
Conventional loans are a great option if you have money for a down payment. Ask your loan officer what is the best option for you. Interest rates vary based on your credit score and down payment. Remember that rates are fantastic right now and we don't know how long they will stay this low!
Leslie Vanderwerf, Advisors Mortgage - lvanderwerf@advisorsmtg.com - Website
