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Lenders
do good things for homebuyers. They lend large sums
of money. In exchange for lending large
sums of money, they place a lien (mortgage) on the
deed to your home. Later, when you decide to sell
the home, the lender's lien must be paid off. That's
the easy part. The rest gets complicated because
there are now so many types of loans and sources
of funds to borrow, it takes
an encyclopedia to keep up with them. We'll try to
make it easy for you. The following are the types
of loans popular in today’s real estate marketplace.
FHA
FHA
vs. Conventional Financing
VA
Jumbo
Loans
FHA
The Federal Housing Administration (FHA), a wholly owned government corporation,
was established under the National Housing Act of 1934 to improve housing standards
and conditions. It's goal was to provide an adequate
home financing system through insurance of mortgages, and to stabilize the
mortgage market.
Thanks to the mortgage insurance products FHA helped
to pioneer, such as the long term amortizing loan,
the nation's home ownership rate has soared to an
all time high of 66 percent as of the third quarter
of 1997; well on the way towards the goal of 67.5%
by the year 2000.
Today, FHA plays a critical role in financing for
minority borrowers, first time home buyers, borrowers
who have troubled credit history, and borrowers who
have little money to put down on a home.
- In Fiscal Year 1997, 76 percent of FHA loans
originated were first-time home buyers compared
to 68.3
percent in Fiscal Year 1995 and 72.7 percent
in Fiscal Year 1996.
- Loan
origination's for minority home buyers are increasing.
The result
is 29% of new homeowners in the past three years.
In keeping with the Government's reinvention efforts,
FHA has been very ambitious in innovating, automating,
and streamlining the process.
- Many
Single Family mortgage insurance programs have
been streamlined. For instance,
the Section
203(k) purchase and rehabilitation program has
been greatly modified. Lenders, Realtors, and
nonprofit organizations across the country have
received training on how to make the Section
203(k) program work for them and ultimately for
you, the consumer.
- FHA has undertaken a demonstration in the area
of automated underwriting before beginning to
design its own automated underwriting tool as
automation saves time and it ensures a more uniform
treatment of all applicants.
- In the area of Manufactured Housing, FHA has worked
with the industry to ensure that all manufactured
homes meet enhanced safety standards.
- Finally, FHA is using the Internet in its business
processes. FHA lenders can now submit information
concerning their insurance endorsements electronically
to a secured worldwide website called the FHA
Connection. FHA homeowners can also access information
regarding mortgage insurance premium refunds
on the HUD/FHA home page.
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FHA
vs. Conventional Financing
Most applicants are inundated with a variety of terms describing mortgages that
are available on the market. The most popular include, Fannie Mae, Freddie Mac,
and FHA.
FHA was created by the Federal Government to provide
affordable housing financing for qualified borrowers.
FHA insures 100% of the loan, eliminating the lender's
risk. The borrower pays an upfront insurance premium
which is approximately 1.5% of the loan amount. This
money can be financed directly in the loan amount.
The borrower also pays a monthly premium of .5% of
the loan amount divided by 12 months. FHA requires
down payment of 3%. This money can be a gift. No
reserves are required. Closing costs can be financed
in the loan amount.
Borrowers must provide proof of sufficient income
to show ability to pay the mortgage. FHA guidelines
are more relaxed, such as; a bankruptcy that was
discharged at least 2 years ago, the use of alternative
credit (utilities, cable TV, auto or medical insurance
premiums, child care, school tuition, furniture or
appliance store accounts) in lieu of traditional
credit, and higher debt to income ratios. FHA interest
rates are extremely competitive with conventional
rates.
Fannie Mae loans are conventional loans made at
the risk of the lender without benefit of any government
guarantee or government insurance. A conventional
loan with an LTV (loan to value ratio) of greater
than 80% requires primary mortgage insurance, which
can be paid monthly. The borrower must have 5% of
his/her own funds for the down payment and 2 months
reserves on deposit. Closing costs must be paid by
the borrower.
Requirements of a conventional loan applicant include
excellent credit, job stability with sufficient income,
a sizable down payment, and low debt to income ratios.
Borrowers who meet Fannie Mae guidelines are rewarded
with an interest rate only slightly lower than an
FHA interest rate.
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VA
These loans are guaranteed by the Department of Veterans Affairs. Only active
duty and military veterans can use this loan. This loan requires no down payment
and the seller can pay up to 100% of the buyer's closing costs.
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Jumbo
Loans
We work with lenders who specialize in the Jumbo or Portfolio loans for
special people like you who are in the luxury home market. You will not have
to lift a finger. Our lenders will communicate and process your loan by electronic
means or, if you are local, will meet with you at your convenience in your
office or home. Loans up to over several million are available and special
long lock loans, up to 9 months, are also available. This may be important
if you decide to build and it appears that rates may be on the increase. We
follow loan programs with long term locks, float-down features, short term
locks, fixed, ARMs, no documentation or low documentation loans, or any type
that is best for you.
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Our agents are familiar with all types of mortgage
loans and work with many lenders to make sure you
get the best loan for you. Go to the following topics
if you wish to know more about loans.
We can provide you with more information on:
- Points
- Fixed vs. ARM?
- Lock vs. float?
- PMI/MIP
- First & Second
mortgages
- Qualifying/Pre-approval
- Application/procedures
- No documentation loans
- Assumption loans
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