The biggest mortgage product is the 30 year conventional loan, so that’s what many customers apply for. Since it’s so popular, it’s also the type of loan many originators recommend. This, however, isn’t always the best option for either originators or customers. In fact, you should be thinking about selling them 15 year loans. You should also be thinking of getting them into VA or FHA loans instead of conventional ones. Here are some of the benefits of alternative financing options and why they’re the best options for many people:
15-Year Loans Are Paid Off Faster
This is the most obvious benefit of shorter terms, but it is often overlooked in favor of the lower payments required for the 30-year alternative. This is augmented by the piles of advice that say not to pay off a mortgage early. However, many people find the idea of having to pay a mortgage even after they’re old to be too daunting and will shy away from signing up for the typical long-term option.
Young people buying their first house don’t have to worry about a 30-year mortgage lasting until they’re into their 70s, but middle-aged people do. The last thing people in this or older age groups want to think about is writing out mortgage checks for the rest of their lives. A 15-year loan will allow them to make the regularly-scheduled payments and still be sure that they’ll see the light of day in a reasonable amount of time.
Is the advice against speedy payoffs correct? Perhaps – if people were only going by the calculations in the advice columns. To many people, factors such as knowing a house is safe from economic vagaries are at least as important as interest rates and competing potential investments. The best way to make a house foreclosure-proof is to not have a mortgage on it at all, and a 15-year loan brings it to that status as quickly as possible without mind-boggling payments.
VA and FHA Loans
These options should always be explored when deciding on a loan package to offer. They all offer benefits like easier qualification, lower income requirements, and lower down payments.
Easier qualification is a major benefit, and one that shouldn’t be minimized when offering loans to your customers. Someone who has made a few credit mistakes may well be stable enough to handle a mortgage, but conventional lenders often require FICO scores around 680 before they’ll even look at an application. A few lenders may go as low as 650 or even 630, but that’s only in some areas.
Down payments are also a big barrier to conventional loans. Even those with great credit often have trouble coming up with the 20 percent down that most lenders demand. This problem gets worse as the cost of a house increases, and it often keeps people from being able to obtain the size of house they could afford if they could only put more of that cost onto the mortgage.
Loans from the VA and the FHA both have lower credit score and down payment requirements than the typical, conventional loan. Even better, they’re backed by the government instead of risky private subprime lenders. This will encourage people to apply for them.
FHA loans require a minimum credit score of just 580 with a minimum down payment of 3.5 percent. This makes them immediately accessible to far more people than conventional loans can serve. As with other lenders, their score requirements drop as down payments rise. If someone comes to your office with a FICO score of just 500, you still don’t have to send them away. They’ll simply need to make a 10 percent down payment, which is still lower than what a conventional mortgage would demand.
VA loans are available to veterans and offer financing with no down payment whatsoever as long as the desired amount isn’t above four times the basic entitlement. The hard figure varies according to the local housing market, so a bit of research is needed in order to determine what it’ll be for a particular house. According to the VA, lenders must reference the “One-Unit Limit column in the FHFA Table ‘Fannie Mae and Freddie Mac Maximum Loan Limits for Mortgages Acquired in Calendar year 2015 and Originated after 10/1/2011 or before 7/1/2007.'”
Both the FDA and the VA offer 15-year mortgages as well as the typical 30-year option, so they’re great for people who want to be able to get into a house with a low down payment and fair credit score but don’t want to face decades’ worth of payments.
Which Loans Are Best for First-Time Home Buyers?
First-time home buyers may have good credit, but the substantial size of the down payment required for the average house is often prohibitive. Therefore, FHA and VA loans should be the first ones considered for customers in this position. The low down payment will get the keys in their hands without the need to save up for years on end. For those who don’t have great credit, the lower score requirements are another essential that makes these loans some of the best options.
How About Middle-Aged and Older People?
These are the ones who’ll appreciate it if you sell them a 15-year mortgage. They’ll be glad to have the chance to spend at least some of their retirement years debt-free. This demographic is less likely to move before the loan is paid off, so they’ll actually see the benefits of eliminating ongoing payments.
Because of the benefits of these non-conventional loan options, you should check all of your incoming customers for eligibility for them as well as the usual options. Chances are good that you’ll find that plenty of people are happy to choose them over tough-to-get conventional mortgages.