A conventional loan is a loan that is not guaranteed by the federal government such as an FHA or VA loan. These loans must adhere to the Fannie Mae guidelines. Fannie Mae, or Federal National Mortgage Association, is a corporation created by the federal government that buys and sells conventional mortgages. It sets the maximum loan amount and requirements for borrowers.
A conventional loan is typically 30-year fixed rate mortgage. That means it has a fixed interest rate for the 30 year life of the loan. Conventional loans usually require at least a 20 percent down payment. For example, if a house costs $200,000, the lender will provide a loan for 80 percent of that amount. $160,000 is financed through the lender and the borrower must pay the remaining $40,000 down payment in cash.
Conventional loans can have better interest rates than non-conventional loans and can be a good option for those with a 20 percent down payment. However, even if the borrower does not have a 20 percent down payment, it is still possible to get a mortgage. By putting less down and accepting a possibly higher interest rate, the borrower can still get financing through a non-conventional loan.
An FHA loan is a mortgage issued by a federally qualified lender and insured by the Federal Housing Administration (FHA). An FHA loan is designed for a low to moderate income borrower or borrowers who are unable to make a large down payment. FHA loans allow borrowers to finance up to 97% of the value of the home. A disadvantage of FHA loans is that they require an up-front mortgage insurance premium when the loan is established and a monthly mortgage insurance payment for at least five years and until the outstanding principle reaches 78% of the house’s value. FHA loans are available for one to four unit properties that will be primary residences. Refinancing an existing FHA loan is also possible through FHA
USDA refers to the United States Department of Agriculture and its Guaranteed Rural Housing Loans.
To be eligible, applicants must:
- Have an adequate and dependable income;
- Be a U.S. citizen, qualified alien, or be legally admitted to the United States for permanent residence;
- Have an adjusted annual household income that does not exceed the moderate income limit established for the area where the home is located. Eligible adjustments are allowed for dependents, elderly households, annual child care expenses, and qualifying medical and/or disability expenses. USDA Rural Development offices can provide applicants with information on income limits for their area and assist them in calculating household income. An automated income-eligibility calculator is available online at: http://rdeligibility.usda.gov;
- Have a credit history that indicates a reasonable ability and willingness to pay debt obligations as they become due;
- Meet repayment ability based on the following qualifying ratios:
- Principal, Interest, Real Estate Taxes, and Homeowners Insurance (PITI) of 29 percent of the gross monthly income.
- Total Debt (TD) consists of the PITI and all additional monthly debt obligations (i.e., installment loans, credit card payments, student loans, etc.) of 41 percent of the gross monthly income. Exceptions to exceed the qualifying ratios may be granted by Rural Development upon approved lender request.
Homes That Qualify
- Existing, modular, or new construction homes are eligible. New manufactured homes may be eligible; contact Rural Development for more information;
- Existing homes must be structurally sound, functionally adequate, and in good repair;
- There are no restrictions on the size or design of the home;
- The home must not be used for income- producing purposes, nor may it include buildings or other accessories that produce income;
- Homes must be located in eligible rural areas. USDA Rural Development field offices determine eligible areas. Rural areas may be identified by mapping an exact address or viewing individual counties by State online at: http://rdeligibility.usda.gov.
Highlights of the USDA Guaranteed Rural Housing Loan Program
- Loans may be guaranteed up to 100 percent of the appraised value; the one-time guarantee fee may be included. No downpayment is required;
- Thirty-year fixed interest rates apply and are agreed upon by the lender and applicant. Maximum interest rates apply;
- Loans may include eligible closing costs, legal fees, title services, pre-paid items, and the cost to establish an escrow account for real estate taxes and homeowners insurance if the appraised value is higher than sales price;
- Sellers may contribute to the buyer’s closing costs;
- Homebuyers may apply with a participating approved lender of their choice;
- Buyers must occupy the dwelling as their primary residence;
- Refinance transactions are allowed for USDA Section 502 guaranteed or direct housing loans;
- Guarantee fees may be financed into the loan or paid at loan closing by the borrower, seller, builder, or eligible gift/grant funds;
- Lenders may use secondary market sources, including Fannie Mae, Freddie Mac, Ginnie Mae pools, and participating State housing finance agencies;
- Guaranteed loans are subject to the provisions of the Civil Rights statutes, including the Equal Credit Opportunity Act.
A VA mortgage is a loan made by an approved lender and guaranteed by the Department of Veterans Affairs. They are made available to eligible veterans, those currently serving in the military, and surviving spouses of veterans who died in service or as the result of service.
Even though a VA loan is provided through a private lender, the federal government guarantees a portion of the principal. The Department of Veterans Affairs backs the loan. If the borrower defaults, the lender is protected. VA loans can finance up to 100% of the purchase price and do not require mortgage insurance. They have a up-front funding fee, but that can be rolled into the loan.
The requirements for a VA loan are standard, including good credit, income, and assets. Another is that you must be eligible though your affiliation with the military. A lender making a VA loan requires a Certificate of Eligibility (COE). We can assist you in requesting this certificate through the online portal of the Department of Veterans Affairs.
A jumbo loan is a mortgage with a loan amount exceeding the conforming loan limits set by the Federal Housing Finance Administration and therefore, not eligible to be purchased, guaranteed or securitized by Fannie Mae or Freddie Mac. FHFA sets the conforming loan limit size on an annual basis. The average interest rates on jumbo mortgages are typically higher than for conforming mortgages.
HARP stands for Home Affordable Refinance Program. There are some recent changes to the program so it is now referred to as HARP 2.0. The goal is to provide access to low-cost refinancing for responsible homeowners suffering from falling home prices. The problem was that for many home buyers, interest rates have dropped considerably since they purchased their homes, but they were not able to take advantage of the lower rates because home values had fallen. HARP 2.0 makes it possible to refinance first mortgages even id the loan-to-value ratio is greater than 100%.
You must meet all of the following requirements to be eligible to refinance under HARP:
- Your mortgage must be owned or guaranteed by either Freddie Mac or Fannie Mae. Give us a call. There are some tools available to find out if your mortgage is held by Fannie Mae or Freddie Mac.
- You must have closed your current mortgage on or before May 21, 2009.
- You cannot have refinanced under HARP previously unless you have a Fannie Mae loan that was refinanced under HARP from March-May, 2009.
- You must be current on your home loan.
- You cannot have made a late payment within the past six months.
- You cannot have made more than one late payment in the past 7-12 months.
- Your loan-to-value ratio must be greater than 80% and
- Under HARP 1.0, your loan-to-value had to be less than 125%, under HARP 2.0, you loan-to-value may be greater than 125%.
- Both HARP 1.0 and 2.0 allow unlimited combined loan-to-value with a second mortgage.
- Your loan must fall under the current conforming loan limits. A conforming loan is one that falls at or below the maximum financeable amount allowed by the Federal Housing Finance Administration (FHFA). In general, the maximum amount financed is $417,000. However, in high cost areas defined by the FHFA, the maximum amount is $625,500. In Clark County, WA the conforming limit is $417,000.
- Certain lenders may have additional requirements beyond these, know as lender overlays.
You may have questions about purchasing or refinancing a home. To ask a question or arrange a no-obligation consultation please complete the form: