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Summary Home Mortgage Loan Financing
What Should YOU
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SUMMARY
Of This PAGE
Summary Mortgage down payment – it is the #1 reason why folks do not buy a home.
It is a % of the purchase price homebuyers pay at closing.
It can be from own funds, a gift or a Down Payment Assistance (DPA).
Percentage varies: FHA loans 3.5%/10%; Conventional 5%/20%.
Less than 20% down requires mortgage insurance (MI).
VA Loans and USDA require ZERO down & no mortgage insurance
DPA: Resources to help you finance your home purchase.
FHA loans 3.5% down for low to mid income & 1st time buyers.
Veterans Guaranty ZERO down payment home financing.
Conventional mortgage loans explained; conventional mortgage with 5% down benefits.
How to Apply for Down Payment Assistance (DPA): All from a REALTOR with OVER 20 years helping clients to finance their homes
A firefighter who I helped to get a DPA has already paid more than HALF of 30 years mortgage 😊
Here’s a summary of the most popular kinds of home mortgage loans
I am always here to help:
FHA – Federally Insured Mortgage Loans
WHO IS FHA Loan for?
FHA mortgage loans are designed to provide mortgage loans to homebuyer in the low-to-mid-income (LMI) bracket as well as first time home buyers who may have a bit challenged credit record
FHA – Federally insured mortgage loans
FHA are more lenient on their credit guide lines – specially on their Debt-To-Income (DTI) ratio
DTI is a ratio found dividing the total debt by the household income.
FHA allows the DTI to be as high as 54%
FHA mortgage loans are guaranteed 100% to the lenders
FHA mortgage loan requires only 3.5% down payment – possibly the lowest percentage in the market
FHA program is sustained by the Insurance fees paid by the homebuyer
The FHA Insurance Has Two Fees:
1) Upfront Mortgage Insurance Premium (UFMIP) now set at 1.75% of the amount of the loan
As the name suggests, it is charged at the time loan is generated AND, typically, it is wrapped into the loan in order to keep with the spirit of 3.5% down payment
2) Mortgage Insurance Premium (MIP) now set at .55% of the amount of the loan which is divided by 12 and added to the monthly payments
Neither the Upfront fee nor the MIP payments count towards the loan amount payment; nor towards the down payment for that matter
“Normal” home hazard insurance (‘Home Insurance’) must be carried simultaneously with the PMI. They cover different things.
MIP covers ONLY the lender - in case of payment default
Home Hazard Insurance (Home Insurance) – covers ‘the integrity of the house’ like – hale damages, storm damage and such
To be clear: FHA does NOT make the loans directly. FHA is more like an insurer to the lenders in case the buyer fails to pay
Lenders like banks, mortgage companies, credit unions will effectively make the loans to the public
Given that FHA program insures 100% to make lenders whole for the total of the loan, there is an abundance of mortgages lenders and banks which are eager to generate FHA loan all across the USA
IMPORTANT NOTICE - REMOVAL OF MIP
Previously up to June 03 , 20213, the homebuyer could ask for the MIP to removed after a combination of the payments plus increased value of the home reached 78% of the purchase price.
That’s NO longer the case.On ‘new loans’ homeowners will continue to pay for MIP will be carried for the life of the loan until such point the mortgage loan is completely paid off…
OR it is refinanced into a conventional loan! ☹
FHA 203(K) Home Improvement Loan
203(K) Home Improvement Loan
FHA is fairly restricted as far as the conditions of the house they will guarantee. However, there is a possibility to take a second loan on the same house for home improvement
It is like two loans in one
Naturally the home owner must qualify for that extra amount
Home improvement amount will stay in escrow with the lender until improvement are completed and verified by an FHA home improvement expert
Home improvements must be done by licensed contractors – NOT by the homeowner!
203(K) is a bit bureaucratic, but it works!
Most Home Life Style Homes
FHA mortgage loans apply to most home life style: Detached single family residences, town-homes and condos.
Most town-homes will be approved
Condos – must be FHA Approved in advance. Do check before you set your heart in one
Trailer Homes: FHA insures manufactured homes through its “Title I program”
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Conventional Mortgage Loans SUMMARY
Who Is Conventional Loans For?
Designed for those who can afford to put a larger down payment
Conventional mortgage loans are NOT insured NOR guaranteed by any government agency
Conventional loans are made on the credit worthiness of the homebuyer as well as the value of the property
…and, also to fact that more likely there will be a large down payment
It is more often that homebuyers will have to come with 20% of down payment
That amount can be much higher than low-to-mid income homebuyer and first-time buyer can afford
The 20% down figure is due to the fact that it creates a financial ‘cushion’ for the lender in case the loan goes into default
With 20% down – it cuts the need for mortgage insurance
So, at this level of down payment, there is NO insurance premium either
“NEW” CONVENTIONAL
With 5% Down Payment + PMI
In recent year some lenders have created a product which is a new Conventional with 5% down payment [not backed nor insured by any government institution] but it requires PMI
The Convention with 5% down will require Private Mortgage Insurance (PMI)
This PMI cost is somewhat lower than what FHA charges
Contrary to the FHA private mortgage insurance which now stays with the homebuyer until loan is paid off or refinanced, Conventional 5% down already comes with a sunset clause that it will phase out when mortgage payment + house increased value come to around 80% of the original loan value
Conventional mortgage loans are the most used type of loan and lending companies as well as banks all over the US are willing to generate them
Single detached residence, town-home or condo will qualify
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VA Mortgage Loans SUMMARY
Who Is The VA Loans For?
Designed to provide mortgage loans GUARANTY to active service men and women, veterans of all branches of the US armed forces as well as National Guard reserves and unmarried spouses of the deceased veterans as well as POWs and MIAs.
The Veteran Administration (VA) will guaranty a portion of the VA mortgage loans.
Repeat: It is a guaranty! Not an insurance
Veterans Administration guarantees a portion of the loan – up to 25%
Veterans may qualify for a mortgage loan with ZERO down payment without mortgage insurance
There is NO requirement for mortgage insurance, none whatsoever – VA prohibits any fees assessment to the vets
With the VA guaranty up to 25% the Veterans have a
plenty of lenders to be eager to generate these loans.
AND they should still offer their best interest rates!
House Must Be in Move-in Condition For VA Approval
VA has some of the most strict guide lines as far as the house issues – it must be in ‘move-in condition’
There should be NO home improvements to be done post-closing
VA will NOT allow a 203(K) home improvement loan.
The house has to be in move-in condition before closing
There is a “VA Funding Fee” which can be wrapped into the loan
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