Understanding Your Financing Options

If there is one thing the media has made us aware of throughout the course of this morgage meltdown, its just how creative(and crazy) lenders were with the financing options.  As the credit from the banks tightened so did the lending options available for buyers.

While most of the exotic loans of the past are gone their are still many financing options available.  Below is a list of options and what it takes to qualify for the loan.

Conventional Loan: A conventional loan is a lender agreement that’s not guaranteed or insured by the federal government. At one point in our history, conventional loans were the only mortgage loans available and they were all made by local lenders such as banks, savings and loans, and credit unions. They kept and serviced these loans in their own portfolio until they were either paid in full or foreclosed on.

A Conventional loan typically requires a large down payment that may not be required when financing through the government, however it does offer more flexibility because you are working directly with a bank.

FHA: FHA loan is a federal assistance mortgage loan in the United States insured by the Federal Housing Administration. The loan may be issued by federally qualified lenders.  FHA primarily serves people who cannot afford a conventional down payment or otherwise do not qualify for PMI.

Required Documentation For FHA Loans

• A two year history of employment in the same field is required
• If you are a recent college graduate, your last two years of schooling can be used if you are currently working in your field of study
• Credit Scores normally need to be above 620 for Conventional financing-580 for FHA and VA looks at a case by case basis
• If no credit history exists-you may use cell phone bill, cable bill, previous rental history, etc. to establish a “pattern” of good credit payments
• Proper ID as defined by the Patriot Act (State Driver’s License or Birth Certificate along with a copy of your Social Security card required)
• Debt Ratios should be below 36/46

VA:  A VA loan is a mortgage loan in the United States guaranteed by the U.S. Department of Veterans Affairs. The VA loan allows veterans 100% financing without private mortgage insurance or 20% second mortgage. A VA funding fee of 0 to 3.3% of the loan amount is paid to the VA and is allowed to be financed. In a purchase, veterans may borrow up to 100% of the sales price or reasonable value of the home, whichever is less. Since there is no monthly PMI more of the mortgage payment goes directly towards qualifying for the loan amount, allowing for larger loans with the same payment.

The VA does not make home loans, they insure them.  We are VA approved and can help you with your VA loan request. Some VA benefits include:
– No downpayment is required in most cases
– Borrow up to 100% of purchase price
– Lower closing costs
– Mortgage is assumable
– No Private Mortgage Insurance (PMI)
– No penalties if you prepay the loan
– You may be eligible for waiver of VA funding fee
– VA support during temporary financial difficulties

GRH: A Guaranteed Rural Housing loan is a federal assistance mortgage loan in the United States insured by the RHS.

Some key features include:
–  No PMI. That’s right, no private mortgage insurance.  Like VA, this program has a Guaranteed fee that can be financed into the loan the same way VA loans have a Funding fee.
– 6% seller help/contribution is allowed
– No minimum contribution from your own funds.  FHA has a 3% requirement.  There are also no cash reserves required, as is the case with your typical conventional loan.
– This program only offers a fixed rate option for primary 1 unit residences.  Current maximum loan amount is $417,000.

requirements for loan:

• 1-unit primary residences, including single-family dwellings, condominiums, planned unit developments (PUDs) and eligible manufactured homes.
• Non-farm
• Leasehold and rehabilitated properties
• Property must meet the rural designation as defined by RHS

Good Neighbor Next Door Loan: Good Neighbor next door program is made available by HUD so law enforcement and Teachers may purchase a Hud home at half price.  If the police officer or Teacher uses fha financing for this purchase he/she will only need a downpayment of $100 and can finance the closing costs into the loan.

Interest Only and Adjustable Rate loans are still available but given the current market situation they are not used often.