Loan Options and Information:

Conventional –

The traditional conforming 30-year fixed-rate mortgage has a constant interest rate.  Typical down payment is 5% of sales price.  First time home buyers could be eligible for a 3% down payment option. Terms vary from 10-30 years. 

FHA-

An FHA loan is a mortgage loan that is insured by the Federal Housing Administration (FHA). Essentially, the federal government insures loans for FHA-approved lenders in order to reduce their risk of loss if a borrower defaults on their mortgage payments.  This is accomplished by charging the borrower an upfront mortgage insurance premium (UFMIP) on all loans as well as a monthly insurance premium.  Additionally, there is a minimum 3.5% down payment.  This product is more forgiving on credit history and score. 

Jumbo Loan (High Balance) -

A jumbo loan is a loan that exceeds the conforming loan limits as set by Fannie Mae and Freddie Mac.  As of 2021, the limit is $548,250.  This product will require 10.1% down payment. Borrower must also wait 15 months prior to refinancing rate and term.  Note: Cash Out refinances are not allowed.    

VA-

Am I eligible for a VA-backed purchase loan?  You may be eligible for a VA-backed purchase loan if you meet all of the requirements listed below. All of these must be true. You: 1.  Qualify for a VA-backed home loan Certificate of Eligibility (COE), and 2. Meet our—and your lender’s—standards for credit, income, and any other requirements, and 3. Will live in the home you’re buying with the loan as your primary residence.   

A VA-backed purchase loan often offers:

No down payment as long as the sales price isn’t higher than the home’s appraised value (the value set for the home after an expert reviews the property)

Better terms and interest rates than other loans from private banks, mortgage companies, or credit unions (also called lenders)

The ability to borrow up to the Fannie Mae/Freddie Mac conforming loan limit on a no-down-payment loan in most areas—and more in some high-cost counties. You can borrow more than this amount if you want to make a down payment.

No need for private mortgage insurance (PMI) or mortgage insurance premiums (MIP). But there is a one-time upfront funding fee, unless you meet specific requirements that exclude you from the fee. The fee may be added to your loan and paid off over time or paid upfront.  The fee varies depend on whether or not you have used a VA loan before.  The fee for first time use, and if you are putting less than 5% down payment will be 2.3% of the loan amount. 

What is a conforming loan vs a non-conforming loan?

A conforming loan meets the guidelines to be sold to either Fannie Mae or Freddie Mac, two of the largest mortgage buyers in the U.S. Non-conforming loans, are those that fall outside those guidelines, so they can’t be sold to Fannie Mae or Freddie Mac.

Conforming Loans Meet the following: 

Minimum credit sore of 620,

Loan amount that does not exceed the current loan limit (As of 2021, the limit is $548,250),

Maximum debt to income ratio of 43% and

Minimum down payment of 5% (3% for first time buyers)

What is Mortgage Insurance?

Private mortgage insurance (PMI) or mortgage insurance premiums (MIP) -

PMI is a type of insurance that protects the lender if you end up not being able to pay your mortgage. It’s usually required on conventional loans if you make a down payment of less than 20% of the total mortgage amount.  It will be removed once the loan to value falls below 80%.

MIP is what the Federal Housing Administration (FHA) requires you to pay to self-insure an FHA loan against future loss.  This is the monthly premium and will remain for the life of the loan.

Gift Funds-

A borrower of a mortgage loan for a principal residence or second home may use funds received as a personal gift from an acceptable donor. Gift funds may fund all or part of the down payment, closing costs, or financial reserves subject to the minimum borrower contribution requirements below. Gifts are not allowed on an investment property.  A gift can be provided by: a relative, defined as the borrower’s spouse, child, or other dependent, or by any other individual who is related to the borrower by blood, marriage, adoption, or legal guardianship; or a fiancé, fiancée, or domestic partner.  The donor may not be, or have any affiliation with, the builder, the developer, the real estate agent, or any other interested party to the transaction.

How is your credit score calculated:

Payment history: 35%

This is your record of making payments on time and in full. Timely mortgage payments are particularly important. A single late mortgage payment in the last 12 months can downgrade your score. Late payments on other debts such as credit cards and car loans are also bad for your credit score, as are judgments, charge-offs and collections accounts. 

 To avoid damage to your score, pay bills on time, settle any delinquent accounts and check your credit report regularly to make sure you’re not being held responsible for disputed bills.

The balance you owe compared to your available credit limit: 30%

 Ideally, you should keep your balance below 30 percent of your credit limit. At the very least, it should be below 50 percent. While it may seem like a good idea to close credit accounts you don’t use often, you’re actually better off leaving them open. Also, don’t concentrate large balances in a few accounts. It’s better to spread the balance across credit lines than to have one or two accounts with a balance constituting more than 50 percent of the limit. If your credit card company is willing to increase your credit line without pulling a new report, you should take advantage of that.

How long your accounts have been open: 15%

The longer your accounts have been open, the better it is for your credit score. Again, avoid closing credit accounts. But if you have to, close the newer instead of the older ones. And opening new accounts can lower your score initially, so keep that in mind if you’re tempted to open one just to get a 0 percent introductory rate or a discount at the store. That being said, opening a few extra accounts that you don’t intend to use may not be a bad idea if you intend to get a mortgage eventually. If you don’t have much of a credit history, those extra accounts can raise your score eventually if you keep them active and their balances low.   

Type of credit: 10%

Having nothing but a lot of credit cards will hurt your score.  A mix of credit types is best, including mortgage, auto loan and not more than five credit cards.

Number of recent inquiries by creditors: 10%

Checking your own credit report won’t affect your score. But when a potential creditor — such as a mortgage or auto loan lender, credit card company, or department store   — performs an inquiry on your credit, that can have an impact on your score for up to a year. But you can reduce that impact by taking certain steps. When they’re done within 45 days of each other, multiple inquiries about mortgage or auto loans are treated as only one. However, if you already have a mortgage in the works, you might want to wait until the loan closes before applying for any new credit.