Some types of mortgages are backed or guaranteed by a government agency such as Veteran Affairs (VA) loans. Mortgages that are not insured by an agency are conventional loans. Conventional loans exist for homebuyers or homeowners who may not be able to obtain approval under non-conventional mortgage guidelines.
Requirements
While conventional loans are not insured by any government agency, these loans do adhere to specific guidelines. The guidelines that conventional mortgage lenders follow are set by Fannie Mae or more formally known as the Federal National Mortgage Association (FNMA). Fannie Mae was created by the federal government and is one of the biggest buyers and sellers of conventional loans. Fannie Mae sets all of the requirements that conventional mortgage borrowers must meet, including minimum credit scores, debt-to-income ratios and maximum loan amounts.
Terms
Conventional mortgages tend to be 30-year-fixed rate mortgage loans. A 30-year-fixed rate conventional mortgage is a fully amortized mortgage. This means the mortgage payments are calculated so that the borrower pays equal principal and interest payments per month, and at the end of the 30-year term, the mortgage is paid in full. It also means that the interest rate is fixed for the entire term of the loan. These loans are also available in 25, 20, 15, and 10 Year terms. Some borrowers also like the conventional arms which are available in 10, 7, 5, and 3 year terms and usually based on 30 Year amortization.
Down Payment
While unconventional loans may allow borrowers to finance up to 100 percent of the value of the home, conventional loans tend to require some form of a down payment. Conventional loan lenders usually require a 5 percent down payment, but some programs are available with as low as 3%. In most cases you will need to put down 20% to avoid paying mortgage insurance and / or being required to escrow taxes and insurance.
Maximum Loan Amount
The maximum loan amount is always subject to change but currently set at $417,000 in most of the states Pacor Mortgage does business. Contact a Pacor Mortgage Conventional Conforming Expert for more information clientservices@pacormortgage.com.
Congress created the VA Loan Guaranty Program in 1944 to help returning service members achieve the dream of homeownership. Since then, the Department of Veterans Affairs has helped more than 18 million military members purchase homes.
What is a VA Loan?
A VA loan is perhaps the most powerful and flexible lending option on the market today. Rather than issue loans, the VA instead pledge's to repay about a quarter of every loan it guarantees in the unlikely event the borrower defaults. That guarantee gives VA-approved lenders greater protection when lending to military borrowers and often leads to highly competitive rates and terms for qualified veterans.
What are the Key Benefits of a VA Loan?
Far and away, the most significant benefit of a VA loan is the borrower's ability to purchase with no money down. Apart from the government's UDSA's Rural Development home loan and Fannie Mae's Home Pat
h, it's all but impossible to find a lending option today that provides borrowers with 100 percent financing.
VA loans also come with less stringent underwriting standards and requirements than conventional loans. In fact, about 80 percent of VA borrowers could not have qualified for a conventional loan. These loans also come with no private mortgage insurance (PMI), a monthly expense that conventional borrowers are required to pay unless they put down at least 20 percent of the loan amount.
• Competitive interest rates that are routinely lower than conventional rates
• No prepayment penalties
• Sellers can pay up to 6 percent of closing costs and concessions
• Higher allowable debt-to-income ratios than for many other loans
Contact a Pacor Mortgage VA Expert for more information clientservices@pacormortgage.com.
FHA Loans Allow a Blemished Credit History
If your credit is less than perfect, FHA might be the loan for you. You may qualify for an FHA loan even though you have had financial problems. FICO scores can be lower than those for a conventional loan.
Bankruptcy.
You can usually obtain an FHA loan a few years from the date of your bankruptcy discharge, as long as you've maintained good credit since your debts were discharged.
Foreclosure.
If you keep your credit in excellent shape since a foreclosure, an FHA loan may be available to a few years from the final date of your foreclosure.
FHA Loans Boast Competitive Rates & Terms
Today's terms are pretty straightforward. In fact, in many markets the rates and terms are better than those for 80% / 20% piggyback loans.
• There is little or no adjustment to the interest rate for an FHA loan, as the rates are NOT risk based like a conventional loan.
• Mortgage insurance is funded into the loan, meaning a premium of 1.0% is added to the loan balance instead of being paid out-of-pocket. In addition, a small portion for the mortgage insurance premium is added to the monthly payment, but it is far less than most private mortgage insurance premiums.
• As of January 1, 2009, Borrowers can finance 96.5% of the purchase price and put down 3.5 percent. In some instances, when combined with other types of loans, the down payment can be as low as 1%.
• Allowable debt ratios are higher than the debt-ratio limits imposed for conventional loans.
FHA Loans Demand Fewer Repairs
At one point, FHA repair demands were so excessive that sellers would discount the list price to buyers who would agree to obtain conventional loans over FHA loans. Today the FHA repair guidelines appear more reasonable.
FHA appraisals do not take the place of a home inspection, never have. Buyers should still obtain a professional home inspection.
FHA loans are available to anybody but are used most often by first-time home buyers and low- to moderate-income buyers. However, there are no income limit qualifications.If you are a first time home buyer with little savings, or have had credit issues a FHA loan program may best meet your needs.
Facts that make the FHA Loan ideal for the average home buyer:
Primarily designed for low to moderate income households.
High Approval Flexibility for Credit Problems.
No recent credit history is required to be eligible for a home loan although you will need at least one credit score that meets the requirement.
Continuous College Transcripts acts as your job history for those new to the work force.
You can finance these residential property types: Single Family Homes, Duplex, Townhouse, and Condo's
Works easily with Grants and Charities that assist home buyers with Down Payment money.
Everyone is eligible with no income restrictions.
Interest Rates are comparable to conventional rates.
No risk based Mortgage Insurance Premiums
No prepayment penalties
Sellers can pay up to 6 percent of closing costs and concessions
Higher allowable debt-to-income ratios than for many other loans
Contact a Pacor Mortgage FHA Expert for more information
clientservices@pacormortgage.com.
Rural Development loans are primarily used to help low-income individuals or households purchase homes in rural areas. Primarily those who may face multiple barriers to homeownership. Guaranteed loans are flexible to accommodate buyers who need financing, expanded ratios to qualify, and flexible credit guidelines.
USDA Rural Development Benefits:
- 100% LTV financing with no mortgage insurance.
- No down payment required if funds are not available.
- Payment Assistance may reduce the effective interest rate, thus reducing the monthly payment.
- Note interest rate is fixed.
- Some closing costs may be included in the loan.
- Private Mortgage Insurance (PMI) is not required.
- Funds may be used to construct a new home or buy an existing home.
- Real Estate Taxes and Insurance are escrowed.
Contact a Pacor Mortgage USDA Expert for more information at
clientservices@pacormortgage.com.
With low down payments, no appraisal fee and no mortgage insurance, why not?
HomePath Mortgage allows a borrower to purchase a Fannie Mae-owned property with a low down payment, flexible mortgage terms, no lender-requested appraisal and no mortgage insurance. Expanded seller contributions to closing costs are allowed.
Benefits to You, the Borrower
- Low down payment and flexible mortgage terms (fixed-rate, adjustable rate, or interest-only).
- Down payment (at least 3 percent) can be funded by the borrower's own savings; a gift; a grant; or a loan from a nonprofit organization, state or local government, or employer.
- No lender-requested appraisal.
- No mortgage insurance; ask your lender for cost details on loans without mortgage insurance.
- Expanded seller contributions for closing costs allowed.
- Available for primary residences, second homes and investment properties.
- Many condo project requirements are waived; ask your lender for details.
Contact a Pacor Mortgage Fannie Mae Home Path Expert for more information clientservices@pacormortgage.com.
A mortgage loan in an amount above conventional conforming loan limits currently set at $417,000. This standard is set by the two government-sponsored enterprises Fannie Mae and Freddie Mac, and sets the limit on the maximum value of any individual mortgage they will purchase from a lender. Fannie Mae (FNMA) and Freddie Mac (FHLMC) are large agencies that purchase the bulk of U.S. residential mortgages from banks and other lenders, allowing them to free up liquidity to lend more mortgages. When FNMA and FHLMC limits don't cover the full loan amount, the loan is referred to as a "jumbo mortgage". The average interest rates on jumbo mortgages are typically higher than for conforming mortgages.
Contact a Pacor Mortgage Jumbo Expert for more information clientservices@pacormortgage.com.
This is a form of equity release (or lifetime mortgage) available in to seniors aged 62 or older, per HUD, and is used to release the home equity in the property as one lump sum or multiple payments. The homeowner's obligation to repay the loan is deferred until the owner dies, the home is sold, or the owner leaves. The owner can be out of the home for up to 364 consecutive days.
In a conventional mortgage the homeowner makes a monthly amortized payment to the lender; after each payment the equity increases within his or her property, and typically after the end of the term the mortgage has been paid in full and the property is released from the lender and becomes fully and solely owned by the homeowner. In a reverse mortgage, the home owner makes no payments and all interest is added to the lien on the property. If the owner receives monthly payments, or a bulk payment of the available equity percentage for their age, then the debt on the property increases each month.
If a property has increased in value after a reverse mortgage is taken out, it is possible to acquire a second (or third) reverse mortgage over the increased equity in the home in some areas. However most lenders do not like to take a second or third lien position behind a reverse mortgage because its balance increases with time. It is rare to find reverse mortgages with subordinate liens behind them as a result. A reverse mortgage may be refinanced if enough equity is present in the home, and in some cases may qualify for a streamline refinance if the interest rate is reduced.
A reverse mortgage lien is often recorded at a higher dollar amount than the amount of money actually disbursed at the loan closing. This recorded lien is at times misunderstood by some borrowers as being the payoff amount of the mortgage. The recorded lien works in similar fashion to a home equity line of credit where the lien represents the maximum lending limit, but the payoff is calculated based on actual disbursements plus interest owing.
Reverse mortgage proceeds
The amount of money available to the consumer is determined by five primary factors:
- The appraised value of the property, whether any health or safety repairs need to be made to the house, and whether there are any existing liens on the house.
- The interest rate, as determined by the U.S. Treasury 1 year T-Bill, the LIBOR index or 1 Year CMT.
- The age of the senior (The older the senior is, the more money he/she will receive).
- Whether the payment is taken as line of credit, lump sum, or monthly payments. Line of credit will maximize the money available, while lump sum provides the cash immediately, but the interest fees are the highest. Monthly payments may be set up as "Tenure" payments, which are paid to borrowers for the rest of their lives, no matter how long they live, or "Term" payments, which last for a predetermined period.
- The value of the property, and whether that value is higher than the national loan limit set by HUD.
All these factors contribute to the Total Annual Lending Cost (TALC) as defined by the US Federal Government Regulation Z, the single rate which includes all the loan costs. The specific formulas to calculate the impact of the factors listed above can be found in Appendix 22 of the HUD Handbook 4235.1]
There are reverse mortgages for homes valued over the maximum limit. These are called "Jumbo" reverse mortgages, and are generally offered as proprietary reverse mortgages. For homeowners of higher-valued homes, a Jumbo loan can provide a larger loan amount. However, these loans are currently uninsured by the FHA and their fees are often higher.
The money received (loan advances) from a reverse mortgage is not taxable and does not directly affect Social Security or Medicare benefits. However, an American Bar Association guide] to reverse mortgages explains that if borrowers receive Medicaid, SSI, or other public benefits, loan advances will be counted as "liquid assets" if the money is kept in an account (savings, checking, etc.) past the end of the calendar month in which it is received. The borrower could then lose eligibility for such public programs if his or her total liquid assets (cash, generally) is then greater than those programs allow.]
It is important to note that the homeowner must ensure that taxes and insurance are kept current at all times. If either taxes or insurance lapse, it could result in a default on the reverse mortgage.
Once the reverse mortgage is established, there are no restrictions on how the funds are used. In addition to the tenure monthly payments, the borrower has the option of moving the entire amount of money into investments, or they can simply take the money and spend it as they wish.
Among the options of interest bearing instruments, the borrower can keep them with the lender and (These accounts grow by the same percentage as the interest rate of the loan), move the funds to a directed account with a financial specialist (This option is risky unless you direct the investment options of the financial specialist), or withdraw the funds and manage their investment themselves.
HECM for Purchase
The Housing and Economic Recovery Act of 2008 provided HECM mortgagors with the opportunity to purchase a new principal residence with HECM loan proceeds-the so-called HECM for Purchase ]program, effective January 2009. The program was designed to allow seniors to purchase a new principal residence and obtain a reverse mortgage within a single transaction by eliminating the need for a second closing. The program was also designed to enable senior homeowners to relocate to other geographical areas to be closer to family members or downsize to homes that meet their physical needs, i.e., handrails, one-level properties, ramps, wider doorways, etc. Texas is the only state that does not allow for reverse mortgages for purchase.
Costs and interest rates
The cost of getting a reverse mortgage from a private sector lender may exceed the costs of other types of mortgage or equity conversion loans. Exact costs depend on the particular reverse mortgage program the borrower acquires. For the most popular type of reverse mortgage in the U.S., the FHA-insured Home Equity Conversion Mortgage (HECM), there will be the following types of costs:
- Mortgage Insurance:
- Origination Fee:
- Title Insurance (varies)
- Title, Attorney, and County Recording Fees (varies)
- Real Estate Appraisal
In all of these cases, except the Real Estate Appraisal, the costs of a reverse mortgage can be financed with the proceeds of the loan itself.
Interest rates on reverse mortgages are determined on a program-by-program basis, because the loans are secured by the home itself, and backed by HUD, the interest rate should always be below any other available interest rate in the standard mortgage marketplace for an FHA reverse mortgage. Prior to 2007, all major reverse mortgage programs had adjustable interest rates. Such adjustable rate reverse mortgages are still being offered which are adjusted on a monthly, semi-annual, or annual rate up to a maximum rate.
Several lenders now offer FHA HECM reverse mortgages that have fixed interest rates. Some fixed rate reverse mortgages limit the cash proceeds to half of that offered by adjustable rate reverse mortgages. The borrower(s) will be required to take out the entire amount offered at closing.
Some state and local governments offer low-cost reverse mortgages to seniors. These "public sector" loans generally must be used for specific purposes, such as paying for home repairs or property taxes but most of them often have more favorable interest rates and fewer or no fees associated with them. These programs are typically very restrictive in terms of qualification and location, and many regions, states, and areas do not have such programs at all.]
HUD counseling
To apply for an FHA/HUD reverse mortgage, a borrower is required to complete a counseling session with a HUD-approved counselor. The counselor will explain the legal and financial obligations of a reverse mortgage. After the counseling session, the borrower receives a "certificate of counseling" that is required before the loan application can be processed.
The American Bar Association guide advises that generally,
- The Internal Revenue Service does not consider loan advances to be income,
- Annuity advances may be partially taxable, and
- Interest charged is not deductible until it is actually paid, that is, at the end of the loan.
- The mortgage insurance premium is deductible on the 1040 long form.
When the loan comes due
The loan comes due when the borrower dies, sells the house, or moves out of the house for more than 12 consecutive months. Once the mortgage comes due the borrower or heirs of the estate will have an option to refinance the home and keep it, sell the home and cash out the equity, or turn the home over to the lender. If the property is turned over to the lender the borrower or the heirs have no more claims to the property or equity in the property.
The lender has recourse against the property, but not against the borrower personally nor against the borrower's heirs, referred to as "non-recourse limit." Once all borrowers on a reverse mortgage passes away the heirs are granted 6 months to sell the home, refinance it, or to make the decision to turn the home over to the lender.
