Financing Your Salisbury Maryland Area Home
There are several loan types available to Salisbury MD area home buyers:
Conventional loans are secured by government sponsored entities or GSEs such as Fannie Mae and Freddie Mac, but not insured by any government agency. The down payment requirements and closing cost allowances (seller credits) are variable. A borrower with a 20% down payment is not charged any MIP (Mortgage Insurance Premium). The MIP is charged to borrowers by lenders to mitigate their loss in case the homeowner defaults.
Borrowers with a 10% or higher down payment can get up to a 6% seller credit towards their closing costs. The seller credit is reduced to a maximum of 3% for borrowers with a lower down payment. The MIP charged to buyers changes depending on the down payment, with a sliding scale. The lower the down payment as a percentage of the purchase price, the higher the MIP will be.
Salisbury MD area home buyers who are active duty and veterans with a Certificate of Eligibility from VA (Veterans Affairs) can apply for a VA backed mortgage. You may also be eligible for a VA loan if:
- You have served 90 consecutive days of service during wartime OR
- You have served 181 days of services during peacetime OR
- You have more than 6 years of service in the National Guard or Reserves OR
- You are the spouse of a service member who died in the line of the duty or as a result of a service-related disability. The funding fee for first time users is 1.5% of the loan amount and 3.3% after that.
Major advantages for using a VA loan in Salisbury MD are:
- No Down Payment
- No Private Mortgage Insurance
- Competitive Rates
USDA Rural Housing
Implemented by the United States Department of Agriculture for low to moderate income borrowers, Rural housing loans are becoming increasingly popular in the Salisbury MD area. In general, single family and townhomes located outside the Salisbury MD City limits will qualify, including Fruitland MD, Hebron MD, Mardela Springs MD, Sharptown MD, Delmar MD, Princess Anne MD, Crisfield MD, Pocomoke City MD, Snow Hill MD, Newark MD, Berlin MD, Parsonsburg MD, Pittsville MD and Willards MD. Loans may be for up to 100 percent (102 percent if the guarantee fee is included in the loan) of appraised value or for the acquisition cost, whichever is less. No down payment is required.
Mortgages are 30-year fixed rate at market interest rates. Sellers may contribute to the buyer’s closing costs. Home buyers make application with participating lenders. Buyers must personally occupy the dwelling following the purchase.
A one-time guarantee fee equal to 2% of the loan amount is charged to the lender. Typically, the lender passes on this expense to the borrower as a closing cost. Closed loans have secondary market acceptability, including Freddie Mac, Fannie Mae, Ginnie Mae pools, and many state housing finance agencies. Recently MIP was included with Rural Housing loans at an annual rate of .4% of the loan amount and paid in monthly installments.
The Federal Housing Administration (FHA), an agency of the federal government, insures private loans that are issued for new and existing housing, and loans that are approved for home repairs. Created by congress in 1934, the FHA became part of the Department of Housing and Urban Development's Office of Housing (HUD) in 1965. Today the mission of the FHA includes helping borrowers in the Salisbury MD area get amounts they qualify for, and assisting lenders by reducing their risk in issuing loans. The 203(b) FHA Fixed Rate Mortgage Loan Program is the most widely used FHA home loan, especially among first time home buyers. Borrowers must have a 3.5% minimum down payment, which can be gifted from a family member. While debt to income ratio standards apply, there is no minimum income requirement for a 203(b) loan.
One advantage of an FHA loan is they are assumable, meaning a new borrower can assume the terms of the loan after the property transfers ownership. If prevailing rates at the time of sale are higher than the rate on the existing FHA loan, it can be a favorable selling point. Two downsides to using FHA to finance your Salisbury area home come in the form of Mortgage Insurance Premiums, or MIP. The first is charged to the borrower upfront at 1.75% of the loan amount (also known as the FHA funding fee). The upfront MIP can be rolled into the loan amount as well. The second MIP is the annual fee of 1.35% (on 30 year loans) of the loan amount and divided out and paid monthly. Recent changes require borrowers to pay the annual MIP for the life of the loan.
Contact me today to be pre-approved for your Salisbury area home by one of our trusted lending partners.
Content Authored by Dale King