What features fit your current home mortgage needs? The type of loan that is right for you depends upon many things and is as varied as the reason you need a mortgage. Is this for a purchase or a refinance? How long will you be in the property? What is your credit history like? How much do you have to invest? When can you settle? What is your income? Can it be verified using traditional guidelines? In this section you will find that loans fall into two major categories and many sub-categories. There are thousands of loan programs available for you to choose from. You will need to identify not only which loan program you want but which loan features you need.
The standard loan programs conform to either FHA (Federal Housing Authority), VA (Veteran’s Administration) or Conventional (Fannie Mae or Freddie Mac) guidelines. These guidelines were developed to establish the risk of a mortgage note for investment purposes. All other loans are considered "non-conforming" loans, because they do not conform to the standard guidelines.
"Jumbo" loans are considered "non-conforming" because they exceed the maximum loan limit for conventional loans. Most lenders use conventional underwriting criteria for Jumbo loans, but charge more because of the higher loan limits.
"Sub-prime" loans are loans that do not conform to the normal credit guidelines established for conventional loans. Rates for these loans are typically higher because they are riskier.
Other "non-conforming" loans include Portfolio loans, loans an institution will hold for their portfolio. The guidelines for these programs will depend upon the risk tolerance of the institution, the market they lend in and the return they can achieve by lending to that market. Some lenders will offer special financing as part of their Community Reinvestment Act requirements. Wherever a Bank has a physical branch they are required to make an effort to lend in the local community. Most lenders
offer special programs for folks with low to moderate incomes. Special programs may include low money down, more lenient credit guidelines, lower income requirements and special financing without Private Mortgage Insurance.
Home equity loans or lines, 3rd trusts and bridge loans, lot loans and construction loans as well as loans for rehabilitating or improving a property also fall into the "non-conforming" category. Although there is a greater secondary market for these loans than ever before, these loans are still considered outside the norm for most conforming lenders.
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We find that often the type of loan that best suits you depends upon some unique characteristics you possess that might separate you from the majority of borrowers and therefore cause you to need a loan program with some unique, "non-conforming" features.
If you have credit problems, are a Diplomat, non-resident alien, a first-time buyer, a foreign national, Native American, self-employed, not-employed, relocating, an investor, or a vacation buyer you may need special features on your mortgage to qualify.
These features may require a minor exception to the guidelines and may cost you a higher fee or rate. Some of these unique features actually allow you to benefit from lower rates or fees.
If you have difficulty verifying your income you may seek out a low-doc, no-doc, true no doc, stated income, no ratio or NINA program.
Low or no money down programs such as loans that finance 95%, 97%, 100%, 103% or 107% of the purchase price usually carry a pricing premium or are not offered under every loan program a lender might have. 95% programs are commonplace these days, but some lenders still charge a premium to the rate. You will also pay higher mortgage insurance with less money down. With 5% down look into a combination 1st trust and 2nd trust to avoid PMI. 97% loans are typically reserved for borrowers who are first time buyers and demonstrate excellent credit ratings. The guidelines vary from lender to lender, please check with yours. No money down, or 100% financing is also a difficult scenario to cover completely. The guidelines include exceptions for first time buyers and exclusions for anyone who has not owned a home. There are single loans, some with PMI and some without. There are also a number of combination loans to help you purchase with no money down. Many of these loans require the borrower to have some of his or her own funds in the deal. Do not assume that 100% financing means that you don’t need any money. 103% financing allows you to finance all of the purchase price and 3% of your closing costs. If you borrow 107%, you will finance up to 100% of the purchase price, 2% of the closing costs and 5% can be used to reduce other debts.
Your lender will allow you to purchase a home with less than twenty percent down due to the advent of Private Mortgage Insurance. This insurance reimburses the lender up to a set amount of losses sustained should you default on a mortgage loan. Even in a good housing market, a lender will normally only net about 75% of the sales price after a foreclosure. The two government backed agencies have insurance programs also. In fact, their guidelines are for the insurance. FHA calls their insurance MIP or Mortgage insurance Premium and the Veterans Administration guarantees loans from the Funding Fees collected from borrowers. Some insurance is charged up front, added to the loan, charged monthly or a combination of all three. Because these fees are considered non tax deductible, folks try to avoid PMI. If you combine a first and second trust, sharing the risk, you can avoid PMI. The first trust needs to be lower than 80% and some lenders prefer 75%. Second trusts are commercially available and many lenders will offer both the first and second but will charge a higher rate on the second trust because of the increased risk. Some lenders will offer self insured loans where they charge a higher rate on the whole loan to cover the risk. Your loan rate does not normally reduce when your equity increases though I have seen markets where the seller paid for the mortgage insurance as a purchase incentive.
The property you are buying itself can cause you to have to find a lender with unique guidelines. If you are purchasing or refinancing a condo (low-rise or high rise), a home in a PUD (planned unit development), the first home in a new subdivision, a project with a high investor concentration, new construction, rehab or fix-up, foreclosures or property where the land is worth considerably more than the dwelling, you will probably pay a premium in rate and or fees and will have a reduced number of loan choices. Most conforming loan guidelines are written for properties that are one unit per deed and some are for two unit properties. If you are financing a 3-4 unit building, there are certain restrictions and if there are 5 or more units, you will be looking into commercial financing. Since all of these loans are non-conforming, please consult the individual lender for their specific guidelines, restrictions, exceptions and costs.
