Today, let’s talk about mortgage loan products. This is mainly conventional lending and please remember that mortgage loan requirements/guidelines change almost daily. A short synopsis of FHA requirements.
What I tell you today, could change tomorrow or could be changing as I write this. It is true for all mortgage loans and for almost any guideline or regulation regarding Conventional Loan w/FNMA/FHLMC, FHA, or VA.
The product guidelines change when the GSEs decide something will work better with a slight change here or there within the product.
Lenders use FNMA, FHLMC, FHA, VA, and Ginnie Mae sometimes private investors.
Conventional Products – Different Types of Mortgage Products
A Conventional loan is a loan that usually meets FNMA(Federal National Mortgage Association)/FHLMC (Federal Home Loan Mortgage Corporation) guidelines.
As you now know these are Government-owned agencies.
Products In Conventional Lending
HomeReady – This loan product can help customers who might have –
- Lower-income
- With a 3% down payment range.
- The credit scores are down to 620, depending upon the lender. (FNMA allows to 620).
- First-time homebuyers qualify as well as prior homebuyers.
- Homeowner education is required.
LTV Options of 97%
- The product is for first-time homebuyers and those who may need assistance with refinancing.
- 1 Unit property-principal residence, condos, PUDs, MH Advantage.
- Reserves may be required as this product must be input in the FNMA Desktop Underwriting System (DU). If DU requires reserves..they may be gifted.
- Fixed-rate and Adjustable Rate Mortgages are eligible with a maximum term of 30 years. (there could be some limited conditions).
- If there is a subordinate lien that lien must meet the standard of eligibility of Community Second and the combined loan to value (LTV) cannot be more than 105%.
HomeStyle Renovation
This is how a qualifying borrower who may need renovations, with repairs, energy upgrades, etc. can obtain this loan.
- Purchase or a Limited Cash-put Refinance with renovations (combining loans), with LTVs to 97%. *This can help a borrower who needs repairs but does not want 2 separate loans outstanding.
- The renovation type does not matter but must be to the primary dwelling.
- 15-year loans and 30-year loans are acceptable.
- The renovation funds are limited to 75% (this is a current change) of the lesser of the purchase price plus the renovation cost or the as-completed value.
- This is for One to Four Unit Principal Residence – One Unit -Second Home, One Unit NOO property, etc. **there may be additional limits within each of these units per the lender and investor.
Construction Loans *Single Construction-to-Permanent Financing
- This loan will convert to a permanent long-term mortgage loan upon the completion of construction.
- The LTV maximum is 95%
- Once completion of the construction the loan terms may be modified by the lender which includes the interest rate, the final loan amount, the term, and whether it is a fixed-rate or adjustable-rate loan product.
- This can be a purchase transaction or a refinance. If it is a purchase transaction, the borrower does not own the land at closing. If this is a limited cash-out refinance-the land is owned at the closing.
Underwater Borrowers – High LTV Refinance Loan Are Available Per FNMA Options
- These loans/refinances must benefit the borrower in one form or the other.
- The loan must either:
- give a lower monthly payment
- lower the interest rate
- lower the term, or refinance from an adjustable-rate loan to a fixed rate for a more stable loan product.
This is not a conclusive list, however, it gives you some products that are offered by the GSEs, particularly Fannie Mae. As noted, there are always more guidelines by the lender that are not listed here. The lender you choose will give you the details and requirements per the evaluation of your mortgage eligibility.
Know Before You Go
I will keep saying this over and over. Changes are always in the process. It would be nice to tell you that; hey, this is all you need.
- Good credit, let’s just say…
- A credit score between 680 and 800,
- 5% down payment (from your own funds),
- On the job for 2 years with very little debt and
- Your DTI (debt to income ratio) is 28/36% (housing expense = 28/total debt = 36).
One, two, three, your mortgage loan is approved! Well, it isn’t quite that simple. I am not trying to discourage you and I certainly do not want to paint a grim picture about the loan process.
However, with each product, each loan can vary depending upon your complete credit, financial, and employment/income situation.
What you don’t know, can hurt you, sooner or later!!!
The Product or Type of Mortgage Loan – you need will be based upon several factors, and here a few:
- Are you a first time home buyer seeking a mortgage loan?
- How much money do you have for a down payment?
- Will you need gift funds, if you have not saved your down payment?
- Do you have sufficient funds for a 5% investment from your own funds for a Conventional loan?
- Or do you have a 20% down payment for an LTV (loan to value) less than 80% to avoid Mortgage Insurance?
- Can you qualify for a loan without a parent as a co-signer/co-applicant?
- Are you a Veteran?
- Are you going to occupy the property?
- Do you already have an FHA mortgage loan?
- What is your Sales Price/Purchase Price
Here Is a Synopsis of FHA Mortgage Loan Facts: What to expect:
- 3.5% investment in loan *gift is allowed * changed from 3%. If the credit score is below 580-10% down-payment is required.
- Parents or any person related by blood, marriage, or law, are allowed to be co-applicants and not live in the property that is being secure with the mortgage loan you are applying for.
- A parent or other blood relative may qualify for the loan without any emphasis on the borrower’s financial position other than credit must be acceptable.
- MIP *mortgage insurance premium is added in the loan and you also will have a monthly MIP amount in your payment.
- Upfront MIP is default insurance which is equal to 1.75% x Base loan amount for a purchase transaction. UpFront MIP can be added to the loan amount.
- The annual or monthly MIP figure may vary depending upon your LTV, and term of the loan, from 45 basis points (.45%) to 105 basis points (1.05%). Monthly MIP is paid in your PITI payment each month.
- A Streamline Refinance UPF MIP which was made on or before May 31, 2009, is currently, 1 basis point- 0.01% of the base loan amount. This may be added into the loan or paid at closing. For SL Refinance loans Monthly/Annual MIP for loans originated on or before May 31, 2009, is .55% regardless of the loan to value.
Note: These are not all conclusive for FHA’s entire guidelines. This is a synopsis for your review and as stated different factors are associated with each loan.
Let’s digest the above and get back to this a little later. Too much at one time can make us feel overwhelmed and ensure that we are ready for the quest.
This information is being given to you to make you more knowledgeable about mortgage loan facts and what you may encounter. As stated, all Lender guidelines may vary to some degree.
There are Investor guidelines and then the Lending Institution may have internal guidelines or policies to ensure protection and guidelines may vary accordingly.
PLEASE believe me when I say, buying a home can be a wonderful experience, however, it can also be a learning experience.
See ya next time!
