The FHA, Federal Housing Authority, was created in 1934 as part of the National Housing Act . The FHA insures mortgages made by banks and other lenders. They also help to increase housing standards and create a more stable lending environment.
FHA loans are a popular choice for first-time homeowners. The credit restrictions and down payment requirements are lower than that of conventional loans. There are however tighter restrictions on the condition of the property.
Here's a few characteristics of FHA mortgage loans:
-Minimum down payment is 3.5% of purchase price
-FHA charges an upfront mortgage insurance premium(MIP) . This amount can be financed into loan.
-Down payment gifts are prohibited for anyone that will benefit from the transaction
-Debt-to-income (DTI) ratios are relaxed
Target customer for FHA loan: less than perfect credit, lower income, less cash available for down payment
Saturday, May 14, 2011
Friday, May 13, 2011
"Tell me about conventional loans."
The most dominant mortgage loans in today's market are known as a conforming loans and these loans follow the guidelines set by Fannie Mae and Freddie Mac .
A conforming loan is described as a loan securing a single-family residence with a value of $417,000 or less. However, in areas such as Alaska and Hawaii, the conforming mortgage limit rises to $625,000.
Conventional loans have their own set of minimum guidelines. Borrowers must have a down payment of at least 5% of the purchase price. Borrowers must have credit scores no lower than 620. With that being said, scores lower than 740 are going to be subject to additional fees and rate increases.
Conventional loans with an amount higher than $417,000 are called non-conforming or jumbo loans.
Conventional loan terms are usually 15 or 30 years but some lenders will also offer 10, 20 or 25 year terms. In most cases, the shorter then term, the lower the interest rate.
Variable or adjustable rates are also available on conventional loans. Usually the interest rate is fixed for 3, 5 or 7 years. After the fixed-rate period, the interest rate can change.
These loans are subject to private mortgage insurance(PMI).
Target customer for conventional mortgage loan: excellent credit, has at least 5% down payment
A conforming loan is described as a loan securing a single-family residence with a value of $417,000 or less. However, in areas such as Alaska and Hawaii, the conforming mortgage limit rises to $625,000.
Conventional loans have their own set of minimum guidelines. Borrowers must have a down payment of at least 5% of the purchase price. Borrowers must have credit scores no lower than 620. With that being said, scores lower than 740 are going to be subject to additional fees and rate increases.
Conventional loans with an amount higher than $417,000 are called non-conforming or jumbo loans.
Conventional loan terms are usually 15 or 30 years but some lenders will also offer 10, 20 or 25 year terms. In most cases, the shorter then term, the lower the interest rate.
Variable or adjustable rates are also available on conventional loans. Usually the interest rate is fixed for 3, 5 or 7 years. After the fixed-rate period, the interest rate can change.
These loans are subject to private mortgage insurance(PMI).
Target customer for conventional mortgage loan: excellent credit, has at least 5% down payment
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Down payments
Conventional mortgage loans require minimum of 5% of purchase price down. So if you buy a house for $100,000, 5% of that is $5,000.
FHA mortgage loan require minimum of 3.5% of purchase price down. So if you buy a house for $100,000, 3.5% of that is $3,500.
Rural development(RD) loans may require no down payment.
Don't forget about closing costs though. Most purchase transactions require closing costs be paid up front, at closing.
FHA mortgage loan require minimum of 3.5% of purchase price down. So if you buy a house for $100,000, 3.5% of that is $3,500.
Rural development(RD) loans may require no down payment.
Don't forget about closing costs though. Most purchase transactions require closing costs be paid up front, at closing.
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