Programs

There are many loan programs, all of which contains different features.. This can be confusing for even experienced buyers.

Qualifying for a Loan:

There are thing essential things you'll need to qualify for a mortgage loan. You'll need a strong income, good credit, and the down-payment. With these three things, the loan approval process should be fairly easy. Unfortunately, many borrowers are lacking in one or more of these key areas:

If you have a good job & income, and good credit, it's fairly easy to get a loan with little money down.

If you have good income and a good down payment, you can get a loan with less than perfect credit.

The problem arises when two or more of these three items are lacking: For instance, having a good down-payment, But little to No-income coupled with poor credit.. you may find the loan process much more difficult.

Federal Housing Administration (FHA)

The Federal Housing Administration is a division of the U.S. Department of Housing and Urban Development, commonly referred to as HUD. FHA loans were created to provide affordable mortgages to the average homebuyer. The federal government insures FHA loans, or guarantees participating lending institutions against loss from default on qualifying loans.

Programs and Features:

Fixed Rate Loans, Temporary Buy-Downs and ARMS
Available for detached 1 to 4 unit dwellings, eligible condos and PUD's
Properties must meet HUD guidelines and be inspected by HUD-approved appraisers
Subject to loan limits set by HUD (see HUD web site for loan limits)
Mortgage insurance of one-half of 1% due annually and paid monthly
One time mortgage insurance fee of 2% to 2.25% charged on detached dwellings and PUD's, which may be financed
Non-occupant co-borrowers allowed
No reserve requirements at closing
100% of down payment and closing costs may be a ?gift?
Fully assumable by a qualified borrower
Seller may contribute a maximum of 6% of the lower of the sales price or the appraised value

Veterans Administration (VA)

Veterans Administration loans were created to help veterans finance the purchase of their homes with favorable loan terms. For the purpose of the VA program, ?veteran? includes active duty service personnel and certain categories of spouses. Like FHA loans, the federal government insures VA loans, or guarantees VA approved lending institutions against loss from default on qualifying loans.

Programs and Features:

Fixed Rate Loans and Temporary Buy-downs
Available for detached 1-unit dwellings, eligible condos and PUD's
Properties must meet VA guidelines and be inspected by VA-approved appraisers
Subject to loan limit set by VA, currently $240,000
One time mortgage insurance fee of 2% is typically charged, which may be financed if the total loan amount does not exceed $240,000
No prepayment penalty
No reserve requirements at closing
No down payment required
Out-of-pocket expenses may be gifted, typically from relatives
Only eligible veterans and their spouses occupying the subject property may be co-borrowers or co-signers
Seller may contribute a maximum of 6% of the lower of the sales price or the appraised value

Conforming Loans

meet Fannie Mae and or Freddie Mac underwriting requirements. In other words, income, credit, and property requirements must meet nationally standardized guidelines. Conforming loans are subject to loan amount limits that are set by Fannie Mae (FNMA) and Freddie Mac (FHLMC). These limits vary based on the region in which the subject property is located as well as the number of legal units contained in the subject property.

        48 States               Hawaii & Alaska
1 unit property        $322,700        $484,050
2 unit properties        $413,100        $619,650
3 unit properties        $499,300        $748,950
4 unit properties        $620,500        $930,750

Jumbo and Non Conforming Loans
Loans those that exceed the loan amounts allowed by FNMA and FHLMC.

Programs and Features:

ARMs
Fixed Rates
Credit History Less than perfect
Options Available

Second Mortgages or Home Equity Closed-End Loans

A close-ended loan is one where a set amount of money is borrowed and repaid within a specific period of time. There are a multitude of second mortgage products available and lender guidelines vary widely. Generally, loan amounts, interest rates and fees are tied closely to equity in the property and credit scores. Whether to do a first or second mortgage or whether to take a line of credit or closed-end loan depends largely on the purpose of the loan.

Second mortgages are ideal products for the following situations:

Debt Consolidation: This is the most common purpose for acquiring a second mortgage. Typically, a second mortgage is paid off in a shorter period of time than a first.
Home Improvements: The greater the equity in a property, the better the deal on a mortgage. Often, a borrower will take second mortgage to complete improvement projects. After the improvements are completed, the borrower refinances the first mortgage.
Cash Out: Many borrowers use the equity in their properties to obtain cash to pay for college expenses, vacations, or any other purpose that requires a fairly sizable amount of cash.
Eliminate the requirement for Mortgage Insurance.

Home Equity Lines of Credit

A home equity line of credit loan is a line of credit that is secured against real estate. The amount of the credit line is dependent upon the amount of equity in the subject property and the lender's guidelines. Each lender has its own specific guidelines and limitations. Lines of credit are typically designed for borrowers who intend to pay back the borrowed funds within a short period of time. Equity lines of credit are processed and underwritten similar to traditional mortgages; however, lender guidelines vary widely.

Home equity lines differ from traditional mortgages that provide funds up front, then require repayments of principal and interest each month. With a home equity line, a borrower may draw against any available credit on the line while continuing to make monthly payments during the "draw period." The draw period usually lasts 15 years. At the end of that time, the borrower has a set number of years to repay the remaining balance in full without further draws. The "repayment period" is typically 15 years. Interest on home equity lines accrues similar to interest on credit cards and payments are based on payment factors.

Loan Programs

Income

Be prepared to show your lender proofs of income, such as PayStubs, W-2s, tax returns, 401(K) and other earnings statements. have these documents available for the Broker/ Lender you choose. Lenders want to know how long you've been at your job and how much you make, as well as how long you have been working in your particular field.

A determining factor in the Approval process is your Debt-to-Income ratio: (D.T.I.)
Which is simply, how much income you have coming in on a monthly basis, and how much of that goes toward paying your bills. (IE: car payment, Credit Cards, Student Loans and other obligations) Including the debt you're attempting to establish.
(Most lenders want to see D.T.I. Ratio's under 45 percent)

Another determining factoring is the Loan-to-Value ratio, or (L.T.V.)

When you purchase a property, calculating the LTV is straightforward:

It is the mortgage amount divided by the home's price.

When refinancing, the LTV is the ratio between what you owe and it's worth.

(IE: If your house is worth $100,000 and you owe $80,000, your loan-to-value
is 80%. ($80,000 is 80 percent of $100,000)

Debt Limit Ratio's

There is generally a debt limit associated with each type of loan. The ratio is based on monthly housing payments and total monthly debt payments.

Typically conventional loans have a qualifying ratio of 28/36.
FHA allows for a higher debt load with a qualifying ratio of 29/41.

The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can be applied to housing, including: principal and interest, property taxes, hazard and/ or mortgage insurance.

The second number is the maximum percentage of your gross monthly income that can be applied to housing expenses and recurring debt. Recurring debt includes things like car loans, child support and monthly credit card payments.

For example:
With a 28/36 qualifying ratio:

Gross monthly income of $3,500 x .28 = $980 can be applied to housing
Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses

With a 29/41 qualifying ratio:

Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses