FHA Fixed Mortgages & ARMs
- Loans that are federally insured so we can offer better terms
- Require a down payment of 3.5%
- Require only $100 down on HUD REO properties
How they work: The Federal Housing Administration, a part of the U.S. Department of Housing and Urban Development, or HUD, claims it has backed more than 35 million mortgages since its inception in 1934.
The FHA, like the VA, does not lend money. It provides government backing in the event that the borrower defaults on the loan. FHA loans can be fixed-rate or adjustable-rate mortgages, but the majority of loans are fixed-rate mortgages, according to the FHA.
Growth in the FHA loan program is being fueled by borrowers with newly adjusting ARMs looking to refinance into fixed-rate loans, as well as borrowers whose credit scores fall somewhere between excellent and subprime.
The FHA loan program has been revamped, at least temporarily, by new federal housing legislation signed into law in July 2008. Effective Oct. 1, 2008, changes include the following.
- Down payment gifting by the seller or any person/entity that financially benefits from the transaction will be prohibited.
- The minimum down payment will increase from 3 percent to 3.5 percent.
- The FHA may charge an upfront risk-based mortgage insurance premium, or MIP, of up to 3 percent. First-time homebuyers will pay no more than 2.75 percent. However, a 12-month moratorium beginning Oct. 1, 2008 caps the MIP at 1.75 percent.
- The new law temporarily raises the maximum loan limit for a single-family home to $625,500 ($729,750 or more in high-cost areas).
- It provides relief for borrowers wanting to refinance into an FHA-backed loan by allowing the lender to forgive all debt above 90 percent of the home's current appraised value. The borrower can then find another lender to refinance the remaining 90 percent into an FHA loan.
Borrowers have traditionally been able to get FHA loans with moderate to high debt-to-income ratios, or DTI. For example, many financial experts recommend your mortgage payment should not exceed 25 percent of your take-home pay. FHA loans enable borrowers to qualify for higher mortgage payments. Of course, a higher DTI means you commit more of your income to the mortgage payment and less to other needs.
The standard without compensating factors is 31 percent to 43 percent (DTI), but it can go higher if based on compensating factors.
One of the benefits of the FHA loan program is that many lenders are more willing to look at a borrower's overall credit picture rather than basing a loan decision on automated underwriting software alone. Such software generally incorporates a credit-score requirement.
Who they're good for: The FHA loan program has historically been the "go to" product for borrowers with blemished or less-than-perfect credit, borrowers with moderate debt-to-income ratios and for those who don't have a lot of money for a down payment.
VA Fixed Mortgages & ARMs
- Loans that are guaranteed by the U.S. Department of Veterans Affairs, allowing us to offer veterans better terms
- No down payment required
- Loan limit of $424,100
How they work: Consumers who served stints in the U.S. military or who are on active duty may want to look into a VA Home Loan administered by the U.S. Department of Veterans Affairs.
Qualified veterans can purchase a primary residence with no money down, as long as the purchase price doesn't exceed the appraised value of the property and the seller is willing to pay closing costs.
The VA does not loan money, but it does back loans made by private lenders to qualified veterans.
The veteran's basic entitlement under the loan program is capped at $144,000. But for the past several years, the VA has been guaranteeing up to 25 percent of the total loan amount based on the conforming loan limits allowed by Fannie Mae and Freddie Mac.
The conforming loan limit for 2008 is generally between $417,000 and $625,500, but depending on where the property is located in the U.S., can exceed those amounts.
The VA guarantees the basic entitlement, but the veteran can still get a loan up to $424,100 with no money down and in some high-cost places it's up to $729,750.
Veterans still need to qualify with respect to income and credit score, and may need money for closing costs. However, the VA program permits the seller to pay closing costs. Borrowers may also need money for the earnest deposit (money the seller usually requires to remove the property from the market while the sales contract is under negotiation).
Loan refinances are restricted under the VA Home Loan Program unless the borrower is refinancing from one VA loan to another.
Service eligibility and entitlement guidelines can be tricky, so it's best to check with the VA before applying for a loan.
One important caveat: A dishonorable discharge will disqualify a veteran from the loan program. However, it's possible to make an appeal to change the status of the discharge.
USDA Guaranteed Rural Housing Program
- For rural properties located in areas deemed eligible by the USDA
- No down payment required
- Income limits apply
The mission of USDA Rural Development’s Single Family Housing Guaranteed Loan Program is to assist low to moderate income rural homebuyers achieve their dream of homeownership!
Rural Development partners with approved local lenders to extend 100% financing opportunities to eligible rural individuals and families for the purchase of safe and sanitary dwellings. Guaranteed loans have assisted thousands of homeowners to purchase a home with affordable interest rates and loan terms.
Applicants must purchase a home within the eligible rural areas, and have a household income that does not exceed the established limits where the home is located. Additional Guaranteed Loan Features include but are not limited to:
- 100% financing, no down payment is required. The loan amount may not exceed 100% of the appraised value, plus the guarantee fee may be included.
- Guarantee Fee applies: may be rolled into the loan amount.
- Flexible credit guidelines. Non-traditional credit histories may be accepted.
- Fixed 30 year interest rates apply. Lenders and applicants agree upon interest rate.
- Qualifying ratios are 29% for housing costs and 41% for total debt. Lenders may request an exception to exceed these ratios when strong compensating factors are identified.
- No maximum purchase price. Qualifying ratios and the applicant’s stable and dependable income will determine home affordability.
- Eligible property types include existing homes, new construction, modular homes, Planned Unit Developments (PUD’s), eligible condominiums and new manufactured homes.
- Eligible closing costs and lender fees may be included in the loan or paid by the applicant.
- Gift/Grant Funds/Mortgage Credit Certificates (MCC’s)/Seller Concessions are allowed.
- Eligible repairs and improvements may be included in the loan.
- Applicants apply with an approved lender of their choice.
- Not limited to first time homebuyers.