Conventional Loans –
Conventional loans are loans made using guidelines written by Fannie Mae and Freddie Mac. Conventional loans are considered conforming when the loan amounts are $417,000 or less for a single-family home. Conforming loan limits can elevate higher in more expensive regions of the country. For example, in such states as Alaska, California and Hawaii, it is $625,500.
There are established guidelines for borrower credit score requirements, income requirements as well as minimum down payments. For example, most conventional loans require somewhere between 3% and 20% down. The amount of down payment required can be determined by the borrowers qualifications or is set by the borrower themselves.
Most conventional mortgages have either fixed or adjustable interest rates. Typical fixed interest rate loans have terms of either 15 or 30 years. A shorter-term loan usually results in a lower interest rate. Adjustable-rate mortgages, or ARMs, fluctuate in relation to the rate of a standard financial index, such as the LIBOR. Monthly payments can go up or down accordingly.
The benefit to most conventional mortgages is that they generally pose fewer bureaucratic hurdles than FHA or VA mortgages, which typically take longer to process because of the red tape. For example conventional loans are excellent vehicles for low down payment condominium or PUD purchases.
FHA loans –
FHA, The Federal Housing Administration, is a part of the U.S. Department of Housing and Urban Development, or HUD, and has backed more than 35 million mortgages since its inception in 1934.
FHA loans can be fixed-rate or adjustable-rate mortgages. They typically require a minimum down payment of 3.5% in most cases. For those on a fixed budget there are a number of down payment assistance programs available that aid the buyer with the required down payment. That is unless the borrowers average credit rating is below 580. In which case a 10% down payment may be required. In most cases the down payments can be gifted by any person or entity that does not financially benefit from the transaction.
Through FHA borrowers have traditionally been able to obtain financing with moderate to high debt-to-income ratios, or DTI. Although without compensating factors a borrower with lower credit rating may see a ceiling of 31% to 435 (DTI), but it could go higher if based on compensating factors.
FHA loan program has historically been the “go to” product for borrowers with blemished or less-than-perfect credit, borrowers with moderate debt-to-income ratios and for those who don’t have a lot of money for a down payment.
FHA loan terms are offered as both long term fixed as well as adjustable.
VA Loans –
VA loans are generally for consumers who served or are on active duty in the U.S. military. Qualified veterans can purchase a primary residence with no money down just as long as the purchase price doesn’t exceed the appraised value of the property.
The veteran’s basic entitlement under the program is capped at $144,000. But veterans can still obtain a loan up to $417,000 with no money down or up to $1.25M in high cost areas with a down.
Veterans still need to qualify with respect to income and credit score, and may need money for closing costs. However, the VA program permits the seller to pay closing costs. Borrowers may also need money for the earnest deposit (money the seller usually requires to remove the property from the market while the sales contract is under negotiation).
VA loan terms are offered as both long term fixed as well as adjustable.
Jumbo Loans –
A jumbo mortgage is a home loan with an amount that exceeds conforming loan limits imposed by Fannie Mae and Freddie Mac. The current conventional limit is $417,000 in most of the United States, but is $625,500 in the highest-cost areas. Most traditional jumbo loans start at $625,500 and go up to $10MM.
While the underwriting process for jumbo mortgages is similar to that of a conforming mortgage, the requirements can differ. The maximum debt-to-income ratio for jumbo loan borrowers is typically 45%. Again with some exceptions to 50%, in some rare occasions even higher. In most cases borrowers will need at least six months worth of reserves in their bank accounts after closing. Jumbo loan terms are often adjustable rates with shorter term fixed periods but they also consist of fixed rate terms. Interest only payment options are also common.
Reverse Mortgage –
Also known as the Home equity conversion mortgages, or HECM. The HECM is a Federal Housing Administration, or FHA, program. It is designed to help homeowners over the age of 62 relocate or downsize to a new home without using up all their savings. It can also commonly used to refinance existing homes.
With the HECM doesn’t contain rigorous credit or income requirements. Borrowers simply need to meet the equity requirements in order to qualify.
With a reverse mortgage the amount you can borrow depends on your age, current interest rates, and the appraised value of your home or FHA mortgage limits for your area, whichever is less.
The HECM can be used to buy a single-family home, a condo or a small multifamily residence, and allows the borrower to convert some of the equity in their existing home to cash. They never have to make a single payment. Instead, they would collect monthly payments out of the equity on a tax-free basis as long as the home serves as their principal residence. If they did not sell their previous home, they could get additional income out of renting that property. Under the plan, you can choose to take the money either in monthly payments, as a lump sum, a combination of the two or even in a line of credit that you can access whenever you need cash.
Eligible homes can be one- to four-units, a condo approved by the U.S. Department of Housing and Urban Development, or HUD, or a manufactured home that meets FHA requirements. Borrowers must agree to pay their taxes and make any necessary home repairs. They must also agree to live in the house as a primary residence.
Home Equity Lines of Credit –
HELOC’s can be a good choice for homeowners who need extra cash to make home repairs or improvements, pay off medical bills, finance a child’s education or meet other major financial needs. But like any other type of loan that’s secured by your home.
HELOC’s are relatively easy to open if you have ample equity in your home. (Equity is equal to the current value of the home minus the total outstanding mortgage balances.) The interest rates are typically adjustable and tied to the Prime rate. The payments are in most cases interest only and based on the principle amount borrowed.
Please note: The programs mentioned above are just a few examples of the products and terms we offer. All terms and guidelines noted above are updated regularly and are subject to change.