CONVENTIONAL LOANS

A conventional loan refers to any mortgage loan that is not guaranteed or insured by the Federal Government. Since they are backed by private banks and not the government, Conventional Loans can often times have stricter requirements to qualify. These loans typically follow the conforming. Some conventional loans do not follow these guidelines and are known as non-conforming. Whether buying a home or refinancing an existing mortgage, conventional loans could be the optimal choice, with cheap loan closing costs and a variety of flexible payment options.

Conventional mortgage guidelines allow borrowers to apply loan funds to a variety of different property types, including primary residences, second homes, and investment properties. In addition, conventional loan funds may also be used to purchase condos, multi-unit developments, modular homes, manufactured homes, and single family residences. Depending on the state in which the property is situated, the maximum financing available for a conventional mortgage is 80%-95% of the home’s appraised value or the selling price, whichever amount is lower.

Conventional mortgage loans offer many advantages to government-insured loans:

•    Conventional loans provide more underwriting flexibility for lenders since they will not be obliged to conform to secondary market guidelines.
•    Due to being free of government regulation, conventional loan lenders may be more liable negotiate or remove particular loan fees.
•  Lenders for conventional loans are more lenient in forms of collateral, allowing other collateral in addition to the mortgage property.
•    Conventional loan lenders are more likely to finance a personal property in accordance with the mortgage loan, such as furniture and appliances.
•    Appraisals will only need to meet lender guidelines, rather than the strict regulations set in place by the Federal Housing Administration (FHA) or the Department of Veteran Affairs (VA).
•    For borrowers who cannot obtain Private Mortgage Insurance (PMI) for one reason or another, lenders may offer to self-insure the loan, although they will typically charge a higher interest rate as compensation for assuming a greater risk.
•    Lenders may be willing to compromise with borrowers who cannot afford closing costs by offering to fund a percentage of the closing costs in return for higher interest rates

FHA LOAN

A conventional loan refers to any mortgage loan that is not guaranteed or insured by the Federal Government. Since they are backed by private banks and not the government, Conventional Loans can often times have stricter requirements to qualify. These loans typically follow the conforming. Some conventional loans do not follow these guidelines and are known as non-conforming. Whether buying a home or refinancing an existing mortgage, conventional loans could be the optimal choice, with cheap loan closing costs and a variety of flexible payment options.

Conventional mortgage guidelines allow borrowers to apply loan funds to a variety of different property types, including primary residences, second homes, and investment properties. In addition, conventional loan funds may also be used to purchase condos, multi-unit developments, modular homes, manufactured homes, and single family residences. Depending on the state in which the property is situated, the maximum financing available for a conventional mortgage is 80%-95% of the home’s appraised value or the selling price, whichever amount is lower.

Conventional mortgage loans offer many advantages to government-insured loans:

•    Conventional loans provide more underwriting flexibility for lenders since they will not be obliged to conform to secondary market guidelines.
•    Due to being free of government regulation, conventional loan lenders may be more liable negotiate or remove particular loan fees.
•    Lenders for conventional loans are more lenient in forms of collateral, allowing other collateral in addition to the mortgage property.
•    Conventional loan lenders are more likely to finance a personal property in accordance with the mortgage loan, such as furniture and
appliances.
•    Appraisals will only need to meet lender guidelines, rather than the strict regulations set in place by the Federal Housing Administration (FHA) or the Department of Veteran Affairs (VA).
•    For borrowers who cannot obtain Private Mortgage Insurance (PMI) for one reason or another, lenders may offer to self-insure the loan, although they will typically charge a higher interest rate as compensation for assuming a greater risk.
•    Lenders may be willing to compromise with borrowers who cannot afford closing costs by offering to fund a percentage of the closing costs in return for higher interest rates

VA LOAN

A VA mortgage loan is a specialized loan type provided exclusively to veterans of the US Armed Services. These loans are backed and guaranteed by the Department of Veteran Affairs (VA) and offer highly beneficial financial advantages to veterans who issued by federally qualified lenders and are guaranteed by the U.S. Veterans Administration, designed to offer long-term financing to American veterans. VA loans if they are VA-approved; for properties of this type not already approved, borrowers may fill out forms to submit to the VA to find out whether the property will qualify. In terms of manufactured homes, some may be eligible for financing if they are classified and taxed as real estate  and affixed to a permanent location and foundation. In addition, manufactured homes must conform to building codes and zoning requirements. guidelines and may not offer VA loans for all types of property. VA “entitlement” is a representation of what the VA guarantees to repay the lender when a borrower defaults on his or her loan. The specific entitlement of any given borrower can be found on the Certificate of Eligibility (COE). A veteran may call their local VA office to obtain their COE or it can be requested on your behalf by providing your DD Form 214 and a completed VA Form 26-1880. Entitlement determines eligibility and issues a COE to qualifying applicants. Next, borrowers must also meet standard underwriting requirements as with any other loan in terms of current income, credit history and score, past bankruptcies, and debt-to-income ratio, however it is generally easier to qualify for a VA loan than conventional loans.

Benefits only offered through a VA guaranteed loan

• 100% financing without private mortgage insurance or 20% second mortgage
• No monthly mortgage insurance
• No minimum Credit Score Requirement
• VA funding fee waived for Veteran’s receiving service connected disability compensation
• VA limits the fees a Veteran is allowed to pay
• No prepayment penalties
• Assumable loans available

HARP 2.0

The Home Affordable Refinance Program (HARP) is a refinance option created by the federal government to aid the millions of homeowners thatare “underwater,” meaning they owe more on their home than their home is worth. The original HARP launched in 2009 allowed borrowers torefinance their home up to a 125% LTV ratio as long as the mortgage was purchased by Fannie Mae or Freddie Mac prior to May 31st, 2009. The new HARP 2.0 removed the LTV limitation allowing borrowers with LTV ratios above 125% the opportunity to refinance and secure lower interestrates. HARP 2.0 frequently waives the appraisal requirement relieving borrowers from additional fees. Loans with LTV ratios above 80% require mortgage insurance. Depending on the terms of your existing loan, HARP guidelines often waive the costly mortgage insurance fees and premium requirement regardless of the LTV ratio of the proposed loan.In order to refinance through HARP 2.0, you must not have previously refinanced under either HARP 2.0 or HARP. Borrowers must be current on allmortgage payments and have made no late payments within six months prior to HARP application and no more than one late payment within12 months of HARP application. By definition, late payments are those which have been overdue for more than 30 days. Credit, debt-to-incomeratio, employment history, and other qualifying factors will be looked at by each individual lender and approved according to their company’sguidelines for the HARP 2.0 program.

If you don’t qualify under HARP guidellines, there are other methods to refinancing an underwater mortgage that could still save you money each month.

CONFORMING LOANS

Conforming loans are conventional loans that meet bank-funding criteria set by Fannie Mae and Freddie Mac. Both of these stock-holding companies buy mortgage loans from lending institutions and secure them for resale to the investment community. Every year, form October to October, Fannie Mae and Freddie Mac establish limits on what constitutes a conforming loan in a mean home price. Buying back mortgage loans allow these agencies to provide a continuous flow of affordable funding to banks that reinvest their money back into more mortgage loans. Fannie Mae and Freddie Mac only buy loans that are conforming, to repackage into the secondary market – effectively decreasing the demand for non-conforming loans.

Conforming Loan Limits:

Number of Units Maximum original Alaska, Guam, Hawaii, and principal balance U.S. Virgin Islands only:

1 $417,000 $625,500
2 $533,850 $800,775
3 $645,300 $967,950
4 $801,950 $1,202,925

NOTE: The conforming loan limit in Alaska, Hawaii, Guam and the Virgin Islands is 50% higher.

BALANCE LOANS PROGRAMS

Super-Conforming (“High Balance” or “Agency Jumbo”) Conventional Loan Limits:

Minimum: $417,000 / $625,500
Maximum: $625,500 / $938,250

Super-conforming mortgages are conventional loans that exceed the standard loan limits set by Fannie Mae and Freddie Mac; however, these loans are considered “conforming” conventional loans. These mortgages provide borrowers with access to the necessary funds to purchase a home in an area where housing prices greatly exceed the loan limits for standard conforming loans. Accordingly, these mortgage loans are only available to buyers with homes in high value counties. Borrowers in the continental U.S. may borrow between $417,000 and $625,000 with a super-conforming loan. Borrowers residing in Alaska, Hawaii, Guam, or the U.S. Virgin Islands may secure between $625,000 and $938,250.

JUMBO LOANS PROGRAMS

Non-conforming Conventional Loan Limits (“Jumbo Loans”)

Jumbo Loans exceed the maximum loan amounts established by Fannie Mae and Freddie Mac conventional loan limits. Rates on jumbo loans are typically higher than conforming loans. Jumbo Loans are typically used to buy more expensive homes and high-end custom construction homes, and usually require a higher down payment than traditional loans.

Minimum: $417,000
Maximum: N/A

Non-conforming loans are defined as conventional loans which do not meet the requirements set by Fannie Mae and Freddie Mac. Most commonly, non-conforming loans cannot satisfy these guidelines due to exceeding conforming loan limits, in which case they are known as “jumbo loans.” As such, conventional loans (not including super-conforming loans) above $417,000 are considered non-conforming and jumbo. Non-conforming conventional loans have no specified maximum limit and thus the maximum amount of money one can acquire varies from lender to lender.

FIXED RATE MORTGAGE (FRM)

With a fixed rate mortgage, the interest rate does not change for the term of the loan; the monthly payment is always the same. Typically, the is paid in full at the end of the term. In the early amortization period of the mortgage, a large percentage of the monthly payment pays the interest on the loan. As the mortgage is paid down,more of the monthly payment is applied toward the principal.

30 year fixed rate mortgage is the most popular type of loan when borrowers are able to lock into a low rate.

Benefits:
• Lower monthly payments than a 15 year fixed rate mortgage
• Interest rate does not go up
• Payment does not go up, it stays the same for 30 years

Drawbacks:
• Higher interest rate than a 15 year fixed rate mortgage
• Interest rate stays the same even if interest rates go down

15 year fixed rate mortgage allows you to pay off your loan quicker and lock into an attractive lower interest rate.

Benefits:
• Lower interest rate
• Build equity faster
• If interest rates go up, yours is fixed

Drawbacks:
• Higher monthly payment stays the same if interest rates go down
• Interest rate stays the same even if interest rates go down

ADJUSTABLE RATE MORTGAGE (ARM)

Adjustable Rate Mortgages (ARM)’s are loans whose interest rate can vary during  the loan’s term. These loans usually have a fixed interest rate for an initial period of time and then can adjust based on current market conditions. The initial rate on an ARM is lower than on a fixed rate ARM loans are usually amortized over a period of 30 years with the initial rate being fixed for anywhere from 1 month to 10 years. All ARM loans have a “margin” plus an “index.” Margins on loans range from 1.75% to 3.5% depending on the index and the amount financed in relation to the property value. The index is the financial instrument that the ARM loan is tied to such as: 1-Year Treasury Security, LIBOR (London Interbank Offered Rate), Prime, 6-Month Certificate of Deposit (CD) and the 11th District Cost of Funds (COFI). When the time comes for the ARM to adjust, the margin will be added to the index and typically rounded to the nearest 1/8 of one percent to arrive at the new interest rate. That rate will then be fixed for the next adjustment period. This adjustment can occur every year, but there are factors limiting how much the rates can adjust. These factors are called “caps”. Suppose you had a “3/1 ARM” with an initial cap of 2%, a lifetime cap of 6%, and initial interest rate of 6.25%. The highest rate you could have in the fourth year would be 8.25%, and the highest rate you could have during the life of the loan would be 12.25%.

Some ARM loans have a conversion feature that would allow you to convert the loan from an adjustable rate to a fixed rate. There is a minimal charge to convert; however, the conversion rate is usually slightly higher than the market rate that the lender could provide you at that time by refinancing.