Loan Programs

Mortgage Programs

Since some mortgage options are less conservative than others, it's important to determine if you are a risk-taker or if you prefer more stability in your financial dealings. Do you invest in the stock market? Or put your money into Certificates of Deposit? These are two different ways of handling money. Depending on your answers to these and other questions that may be asked by your lender, you will be able to choose the mortgage that is right for you.
  • Fixed-Rate Mortgages
  • Adjustable-Rate Mortgages (ARMs)
  • USDA
  • FHA
  • VA
  • Conventional

Fixed-Rate Mortgages

If you're looking for a mortgage with payments that will remain essentially unchanged over its term, or if you plan to stay in your new home for a long time, a fixed-rate mortgage is probably right for you.

With a fixed-rate mortgage, the interest rate you pay and the monthly principal and interest payments are agreed upon from the outset and will not change throughout the term of the mortgage. In other words, the interest rate you close with won't change—and your payments of principal and interest will remain the same each month—until the mortgage is paid off.  As you can see, the fixed-rate mortgage is an extremely stable choice. You are protected from rising interest rates. And it makes budgeting for the future very easy.

But in certain types of economies, interest rates for a fixed-rate mortgage can be considerably higher than the initial interest rate of other mortgage options. That is the one disadvantage of a fixed-rate mortgage. Once your rate is set, it does not change and falling interest rates will not affect what you pay. However, you do have the option of refinancing if interest rates drop significantly.

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Adjustable-Rate Mortgages (ARMs)

An adjustable-rate mortgage (ARM) is considerably different from a fixed-rate mortgage. It may be best if you're buying a home while interest rates are high, if you expect increases in your income, or if you don't plan to keep your home long. Keep in mind, with an ARM, you are taking the risk on the rise or fall of interest rates, not the bank.

In most cases, the initial interest rate of an ARM is lower than a fixed-rate mortgage.

With an ARM, your mortgage rate rises and falls with interest rates. Each lender's interest rates are usually tied to a specific index like COFI, LIBOR, the T-Bill rate, or the CD index. The rate you pay will be based on your lender's index plus a margin, usually two to three points. Ask your lender for specifics. Also ask how the "caps" on your ARM work. "Caps" will limit the amount your lender can increase your interest rate in a single year and over the entire term of the loan.

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USDA Loans

What is a USDA loan?

The objective of the USDA loan program is to assist eligible households in obtaining adequate but modest, decent, safe, and sanitary dwellings for their own use in rural areas by guaranteeing sound housing loans which otherwise would not be made without a guarantee. USDA loans are not just for first-time home buyers but existing buyers who plan on selling their primary home at or before the purchase of a subsequent home

What are the advantages of USDA loans?

No Downpayment - USDA allows for 100% financing. You can always put money down if you choose.

Better Interest Rates - . USDA loans give credit-challenged buyers the ability to qualify at rates they could not get on conventional mortgages, once the conventional rate is adjusted upward for risk.  Rates are always FIXED RATES!

Liberal Credit History – USDA loans allows for flexible credit histories as long as the borrowers middle credit score is greater than 640, down to 620 on case by case.

· Chapter 7 Bankruptcy requires a 3 years lapse from discharge

· Chapter 13 Bankruptcy requires at 1 year lapse from discharge

· USDA requires 3 years elapsed time prior to the initial application on a previous foreclosure from the date the foreclosure was satisfied.

· Allow borrowers with no credit scores as long as alternate credit and rental history can be verified.

· Verification of current rental income in not required

· Reserves are not required. (Money in the bank)

Finance in Closing Cost – USDA loansallows you to finance in closing cost that the seller doesn’t agree to pay as long as the house appraises for the higher amount.

Higher Seller Contributions - There is a higher allowable seller contribution on USDA loans than there is on many conventional loans--6 percent as opposed to 3 percent. This means that you can negotiate for the seller to pay most, if not all, closing costs, which minimizes your out-of-pocket expenses.

Lower Payment – Since USDA loans have lower monthly mortgage insurance premiums, you can qualify for more house than you could with other loan products.

30 Year Fixed Rates Only – USDA does not allow for adjustable rates or varied loan terms.

Assumable – USDA loans are assumable which means if you want to sell your home, the buyer can "assume" the loan you have.

Allows for Repair Escrows – You may finance in the cost of repairs not affecting the livability of the home up to 10% or $10,000 of the loan amount. Repairs are help in the attorney’s escrow account and must be completed within 30 days of closing.

What are the disadvantages of an USDA mortgage?

USDA loans require monthly Mortgage Insurance premiums and an upfront guarantee fee, however, they are considerably less than FHA. The upfront guarantee fee can be paid in full upfront -or, it can be financed into the mortgage -- and the other is a monthly payment.

Upfront Guarantee Fee - This is a 1% upfront fee, which means borrowers will pay a premium of 1% of the home loan, regardless of their credit score. Example: $100,000 loan x 1% = $1,000. This sum can be paid upfront at closing as part of the settlement charges or can be rolled into the mortgage.

Annual MIP (charged monthly) —This is actually a monthly charge that will be figured into your mortgage payment. It is based on a borrower's loan amount and will be adjusted annually based on the new principle balance. For current premium is 35% For example: $100,000 loan x .35 = $350. Then, divide $500 by 12 months = $29.17. Your monthly premium is $29.17 per month. This monthly amount will continue the life of the loan but will decrease each year based on the new principle balance of the loan.

Property needs to meet certain standards —An USDA loan requires that a property meet certain minimum standards at appraisal. Those standards are similar to those of FHA.

Property must be in an eligible USDA area – “Rural” Development does not mean a home has to be in the country. A “rural designated” home may be located inside the city limits of certain communities with a population size of less than 10,000 or up to 25,000. For example: all of Lincoln County and Cleveland County qualify at this time. A map of eligible/ineligible areas for a certain state can be found at: http://eligibility.sc.egov.usda.gov/

Household Income Limitations – Eligible income consists of ALL household income for ALL persons living in the house, not just those applicants on the application. Certain deductions can be taken to determine the “adjusted family income.” This “adjusted family income” must fall below the income limits established by Rural Development to be eligible for a USDA loan. Income limits can be found at: http://eligibility.sc.egov.usda.gov/eligibility/incomeEligibilityAction.do?pageAction=state&NavKey=income@11

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FHA Loans

What is an FHA loan?

FHA loans are government-insured loans backed by the Federal Housing Authority. Private lenders fund the loans but the government insures them against default. Essentially, the federal government insures loans for FHA-approved lenders so that lenders reduce their risk of loss if they lend to borrowers who could default on their mortgage payments. The FHA program has been in place since the 1930s to help stimulate the housing market by making loans accessible and affordable. Since the government covers losses if you foreclose, lenders have minimum standards for qualification. These guidelines offer the best hope for many borrowers to qualify for home loans on terms they can afford. Anyone can get an FHA loan - they are not just for first-time home buyers.

What are the advantages of FHA loans?

Lower Downpayment - FHA requires as little as 3.5 percent down. Can be a gift from a relative.

Better Interest Rates - . FHA loans give credit-challenged buyers the ability to qualify at rates they could not get on conventional mortgages, once the conventional rate is adjusted upward for risk.

Higher Debt Ratios - FHA loans allow for up to 50% debt to income ratios and higher on case by case. Your total monthly debt, including car payments, credit card minimums and installment loans must stay under 50 percent of your monthly income, while conventional loan guidelines allow only up to 45%. FHA-qualified lenders will use a case-by-case basis to determine an applicants' credit worthiness.

Liberal Credit History – FHA allows for flexible credit histories as long as the borrowers middle credit score is greater than 620.

· Chapter 7 Bankruptcy requires a 2 years lapse from discharge

· Chapter 13 Bankruptcy requires at least 1 year from file date with 12 months perfect payment history and approval from the court to take on a mortgage debt.

· FHA requires 3 years elapsed time prior to the initial application on a previous foreclosure. If extenuating circumstances are present, they will consider after 12 months (such as loss of income due to death or illness of major wage earner). If the home was secured by FHA loan and a claim or default is reported on CAIVR a minimum of 3 years will be required.

Higher Seller Contributions - There is a higher allowable seller contribution on FHA loans than there is on many conventional loans--6 percent as opposed to 3 percent. This means that you can negotiate for the seller to pay most, if not all, closing costs, which minimizes your out-of-pocket expenses.

Assumable – FHA loans are assumable which means if you want to sell your home, the buyer can "assume" the loan you have.

No Area Restrictions or Income Limitations – Unlike USDA loans, FHA has no maximum income or geographical restrictions.

What are the disadvantages of an FHA mortgage?

You knew there had to be a catch and here it is: Since an FHA loan does not have the strict standards of a conventional loan, it requires two kinds of mortgage insurance premiums: one is paid in full upfront -or, it can be financed into the mortgage -- and the other is a monthly payment. Also, FHA loans require that the house meet certain conditions and must be appraised by an FHA-approved appraiser.

Upfront mortgage insurance premium (MIP) - This is an upfront monthly premium payment, which means borrowers will pay a premium of 1.75% of the home loan, regardless of their credit score. Example: $300,000 loan x 1.75% = $5,250. This sum can be paid upfront at closing as part of the settlement charges or can be rolled into the mortgage.

Annual MIP (charged monthly) —This is actually a monthly charge that will be figured into your mortgage payment. It is based on a borrower's loan-to-value (LTV) ratio and length of loan. There are two different Annual MIP values: .85% and .80%. If the LTV is less than or equal to 95 percent, a borrower will pay .80%. For LTVs above 95 percent, annual premiums will be .85%. Example (for 3.5% down): $150,000 loan x .85% = $1275. Then, divide $1275 by 12 months = $106.25. Your monthly premium is $106.25 per month and is included in your monthly payment along with your taxes and homeowners insurance. This mortgage insurance will remain for the life of the loan for LTV's greater than 90%.  See table below for additonal LTV and term options.

 

                     

Keep current on the premium costs for FHA loans by visiting the U.S. Department of Housing and Urban Development (HUD).

While the FHA does not have income or location restrictions, there are maximum mortgage limits that vary by state and county.

FHA is limited to Primary Resident loans only. No investment or second homes are allowed.

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VA Loans

What is a VA loan?

VA loans are home loans available to consumers who have served or are presently serving in the U.S. military for purchase of a primary residence. While the Veterans Administration (VA) does not lend money for VA loans, it backs loans made by private lenders (banks, savings & loans, or mortgage companies) to veterans who qualify.

How can veterans get VA loans?

Veterans can apply for a VA loan with any mortgage lender that participates in the VA home loan program, but will need a Certificate of Eligibility from the VA to prove to the lender they are eligible for a VA loan. Lenders can also get the certificate on behalf of their clients. Eligibility rules for VA loans are on the U.S. Department of Veterans Affairs Web site.

What are the benefits of veteran loans?

There are many, as taken directly from the Veterans Administration site:

  • No down payment as long as the sales price doesn't exceed the appraised value.
  • No private mortgage insurance premium requirement.
  • VA rules limit the amount you can be charged for closing costs.
  • Closing costs may be paid by the seller.
  • The lender can't charge you a penalty fee if you pay the loan off early.
  • VA may be able to provide you some assistance if you run into difficulty making payments.
  • You don't have to be a first-time homebuyer.
  • You can reuse the benefit.
  • VA-backed loans are assumable, as long as the person assuming the loan qualifies

 

What is a Conventional Loan?

A conventional loan is a mortgage that is not backed by any Government agency such as the Federal Housing Administration. The lender issuing the loan is assuming the risk. Conventional loans also meet the requirements of Fannie Mae and Freddie Mac. Most conventional loans are issued by private lenders who then sell the loan to one of these Government Sponsored Entities (GSE’s).

Conventional Loan Highlights

  • Conventional loans come with Fixed rates or an Adjustable rate
  • Conventional loans can be used to purchase a primary residence or investment property
  • Down payment typically of 5% – 20%
  • Conventional 97 has a 3% down payment
  • 620 Credit score minimum
  • PMI required for loans with under 80% LTV

A conventional loan may be a good fit for you if…

  • Your credit score is 640 or higher
  • Have a down payment of 10%+
  • Want to avoid PMI by putting at least 20% down
  • Have a high income
  • Purchasing a home above the FHA loan limit

Conventional Loan Down Payment

There are no standard requirements for conventional loans. The minimum down payment for a conforming loan is usually 5% of the sales price. A conventional 97 loan has just a 3% down payment. Conventional loans with less than a 20% down payment and the mortgage is greater than 80% of the value of the home a private mortgage insurance policy is required. A private mortgage insurance policy, or PMI, is an insurance policy that compensates the lender the difference between the 80% threshold and the amount of down payment should the loan ever go into default.

Conventional Loans vs FHA Loans

There are several key differences when comparing FHA and conventional mortgages. For one, FHA loans are easier to qualify for because of their low credit score and down payment requirements. FHA loans require just a 3.5% down payment making them an attractive option for first time home buyers and any buyer without a 20% down payment. FHA loans require mortgage insurance regardless of the down payment. Conventional loans allow you to avoid paying PMI if you have at least a 20% down payment, making conventional loans more attractive to borrowers with higher down payments.