In a previous article, we discussed some of the strategies for minimizing your down payment. But what about those borrowers who have little or no money saved for an upfront investment? Here’s an overview of the zero-down-payment mortgage options available to New Jersey home buyers.
Zero-Down Mortgage Loans in New Jersey
If you’re planning to use a mortgage loan to buy a house in New Jersey, there’s a good chance you’ll have to make a down payment of some kind. But there are some programs that offer 100% financing to eligible borrowers. Here are two government mortgage programs allow home buyers in New Jersey to buy with zero down.
- VA loans: Most military members and veterans are eligible for the Department of Veterans Affairs (VA) loan program. This unique program offers 100% financing to qualified borrowers, which means there is often zero down payment required. Borrowers who use VA loans can also avoid mortgage insurance, in many cases.
- USDA loans: The U.S. Department of Agriculture offers home loan options to borrowers in rural areas who meet specific income requirements. This program is primarily geared toward buyers with low to moderate income. It too offers 100% financing to qualified borrowers. But only a small percentage of home buyers in New Jersey qualify for this ...
The 30-year fixed-rate conventional mortgage is by far the most popular type of home loan in New Jersey and nationwide. In this article, we’ll look at the primary components of this mortgage option, and when it might make sense to use it.
Features of the 30-Year Fixed-Rate Loan
Home buyers and homeowners in New Jersey have a lot of options when it comes to mortgage financing. There are many different loan products available today, and they all have unique features.
The most popular loan option is the 30-year fixed-rate conventional mortgage. But what does this terminology mean to you, as a borrower? Let’s take a look.
Nearly all home loan options are made up of three primary components:
- Loan term — The “term” of the mortgage loan refers to how long you have to repay it. With all other things being equal, a longer term will result in a lower monthly payment since the payments are spread out. As you might have guessed, the 30-year fixed-rate mortgage has a repayment term of 30 years.
- Loan type — Mortgage loans in New Jersey can either be conventional or government-backed. “Conventional” is a term used for home loans that are originated (and sometimes insured) within the private sector, with nogovernment backing. FHA and VA loans, on the other hand, are insured or guaranteed by the federal government. Conventional mortgages are the ...
Home buyers in New Jersey who make smaller down payments often have to pay for a mortgage insurance policy. Depending on the type of home loan being used, either FHA mortgage insurance or private mortgage insurance might be required. This article explains the differences between these two types of coverage, and how they could affect you as a borrower.
FHA Mortgage Insurance vs. PMI in New Jersey
Mortgage insurance is usually required when a smaller down payment results in a higher loan-to-value ratio. For example, when a conventional loan accounts for more than 80% of the home’s value, a mortgage insurance policy is usually required. This is just a long-time industry requirement.
As mentioned above, there are two main types of mortgage insurance, and they have different features and requirements. These policies generally fall into one of the following categories:
PMI for Conventional Loans
- Private mortgage insurance (PMI) is associated with conventional loans, meaning those that are not guaranteed or insured by the government.
- PMI is typically required whenever the loan-to-value (LTV) ratio rises above 80%. Thus, New Jersey home buyers who make down payments below 20% often have to pay for private mortgage insurance.
- The cost of PMI can vary based on several factors. Premiums typically range from 0.3% to 1.5% of the loan amount, paid annually. But they can fall outside of that ...
There’s nothing like tax reform to create confusion among taxpayers. Previously, we wrote that home equity loans in New Jersey (and nationwide) would no longer be tax-deductible, thanks to the new legislation signed into law on December 22. Most major news sources were reporting the same.
As it turns out, there’s more to this story. The Internal Revenue Service recently published a news release to clarify this issue and to eliminate some of the confusion. (It seems that even the CPAs were scratching their heads over this one.)
What you need to know: The interest paid on home equity loans in New Jersey could still be tax-deductible, if the funds are used to “buy, build or substantially improve” the property used to secure the loan.
Interest on Home Equity Loans Deductible in Some Cases
On February 21, 2018, the IRS issued a special advisory to explain that, in many cases, taxpayers can continue to deduct interest paid on home equity loans. The fact that they even issued this advisory indicates the widespread confusion over the subject. In fact, they mentioned it directly:
“Responding to many questions received from taxpayers and tax professionals, the IRS said that despite newly-enacted restrictions on home mortgages, taxpayers can often still deduct interest on a home equity loan, home equity line of credit (HELOC) or second mortgage, regardless of how the loan is labelled.”
Home buyers in New Jersey tend to have a lot of questions when it comes to closing costs and who pays them. One common question is: Can the seller pay some or all of the buyer’s closing costs in New Jersey? Should the buyer ask for this kind of contribution? Is it rare or common?
The short answer is that it’s all negotiable. Trends and customs can vary depending on the current state of the real estate market. In some cases, the seller might agree to pay some of the buyer’s closing costs. This is called a “concession.” But there are a lot of important factors to consider. So let’s start with the basics.
What Are Closing Costs?
The collective term “closing costs” refers to the various fees that must be paid to close a real estate transaction. In New Jersey, as in most states, it’s common for both the buyer and seller to have their own closing costs during a home sale.
- It’s typical for sellers to pay for the real estate agent commissions, transfer fees relating to the sale of the home, and (in some cases) their own attorney fees. There might be other seller-side costs as well, in addition to these.
- The buyer usually pays for most of the fees relating to the mortgage loan (if a home loan is being used), along with the property appraisal, survey and title-related fees.
Can the Buyer Ask the Seller to Pay?
Getting back to the question at hand: Can the seller pay the buyer’s closing ...