Types Of Mortgage Loan Programs Explained

Explanation Of The Types Of Mortgage Loan Programs Available

There a several types of mortgage loan programs. The mortgage process can be quite complex and confusing due to the many different types of mortgage loan programs and the countless of mortgage regulations and the constant changes of mortgage regulations. Not all mortgage borrowers will qualify for a particular type of mortgage loan program but may qualify for a different type of mortgage loan program. For example, a mortgage loan borrower who had a mortgage part of bankruptcy may not qualify for a FHA Loan but may qualify for a Conventional Loan because there is a four year waiting period to qualify for a Conventional Loan from the discharged date of a Chapter 7 Bankruptcy even though the foreclosure is recorded at a later date but with FHA Loans, there is a three year waiting period to qualify for a FHA Loan from the recorded date of the foreclosure. The waiting period on FHA Loans does not start from the discharged date of the Chapter 7 Bankruptcy but from the actual date of the foreclosure recorded date unlike Conventional Loans where the recorded date does not matter and the time clock starts from the Chapter 7 Bankruptcy discharged date. There are so many variables to choose from when selecting the types of mortgage loan programs that best suits your needs as a mortgage borrower. Down payment is another barrier for many home buyers. Every types of mortgage loan programs require minimum down payment with the exception of VA Loans and USDA Loans where the down payment is not required and these types of mortgage loan programs allow 100% loan to value financing and closing costs and the upfront mortgage insurance or VA funding fee can be rolled into the mortgage loan balance. However, not everyone can qualify for VA Loans or USDA Loans. With VA Loans, only Veterans with a Certificate of Eligibility can qualify for VA Loans and USDA Loans, the USDA mortgage loan borrower has to meet the maximum income requirements and the property needs to be in a USDA designated area.

Types Of Mortgage Loan Programs: Fixed Rate Mortgages Versus Adjustable Rate Mortgages

There are two types of mortgage loan programs for mortgage loan borrowers. The most popular types of mortgage loan programs is the fixed rate mortgage program. There are the 30 years fixed rate mortgages, also referred to as FRM, and the 15 years fixed rate mortgage program. The mortgage rates on the 15 year fixed rate mortgages are much lower than the 30 year fixed rate mortgages, however, the borrower will have higher monthly principal and interest payments on a 15 year fixed rate mortgage due to the lower amortization schedule. The fixed rate mortgage program offers the borrower a sense of financial security because your mortgage rates are fixed for the term of your loan and your principal and interest payments will be the same throughout the term of your fixed rate mortgage loan.

Adjustable Rate Mortgages, also known as ARM, is a great mortgage loan program for home buyers who do not plan on living on their home for a long time and maybe are just buying a starter home and plan on upgrading to a larger home in the next five to ten years. Interest rates on Adjustable Rate Mortgages, or ARMs, are much lower than fixed rate mortgages. How an adjustable rate mortgage works is that the interest rate on a home loan is fixed for a period of years and every year after the fixed rate period is over, the mortgage rate with adjust every year for the remaining 30 years. Your mortgage payments, principal and interest payments, may be different every year. The new rate after your fixed rate period is over is based on the margin and index. The margin will remain constant and the index will change depending on which index your mortgage lender will base your mortgage loan. There are 3/1 ARM, 5/1 ARM, and 7/1 ARM types of mortgage loan programs available. For example, on a 7/1 ARM, your mortgage rates will be fixed for the first 7 years of the 30 year mortgage loan and will adjust starting year 8 and every year after that based on the index plus the constant margin for the term of the 30 year mortgage loan term. Adjustable rate mortgage are recommended for home buyers who are first time home buyers who are buying a starter home and plan on upgrading to another home in the next five to ten years.

Types Of Mortgage Loan Programs: Conventional Mortgage Loans

Fannie Mae and Freddie Mac are the two mortgage giants in the United States that govern Conventional Loan and creates and implements the mortgage lending guidelines on Conventional Loans. Conventional Loans are not government loans and the government does not guarantee them against borrower’s defaulting on them like FHA, VA, and USDA does. Conventional Loan Borrowers who put less than 20% down payment are required to obtain private mortgage insurance . There are no private mortgage insurance required for Conventional mortgage borrowers who put at least 20% down payment on their home purchase. Once you build your equity to 20% or more through market appreciation or paying down your Conventional Loan, your private mortgage insurance can be canceled. An appraisal will be required.

Minimum down payment for Conventional Loans is 5% down payment on a home purchase for a primary home. Second homes require 10% down payment and investment properties require between 15% down payment for a single family home investment home up to 25% down payment for a 2 to 4 unit investment properties. Conventional Loans is the only types of mortgage loan programs you can get for second homes and investment homes. FHA Loans, VA Loans, and USDA Loans are for owner occupant properties only.

Minimum credit scores required to qualify for a Conventional Loan is 620 FICO credit scores. Maximum debt to income ratios required for Conventional Loans is 45% DTI.

There is a four year mandatory waiting period after Chapter 7 Bankruptcy discharged date to qualify for a Conventional Loan.

There is a two year mandatory waiting period to qualify for Conventional Loan after a Chapter 13 Bankruptcy discharged date.

There is a four year mandatory waiting period to qualify for a Conventional Loan after a deed in lieu of foreclosure and/or short sale.

There is a seven year waiting period to qualify for a Conventional Loan after a foreclosure

If you had a mortgage part of bankruptcy there is a four year waiting period to qualify for a Conventional Loan from the discharged date of your Chapter 7 Bankruptcy discharged date even though your foreclosure happened at a later date.

Types Of Mortgage Loan Programs: FHA Loans

FHA Loans is the most popular mortgage loan program in the United States today because of the lenient mortgage lending guidelines, lower down payment requirement, lower credit scores requirements, and the high debt to income ratios it permits. Minimum credit scores required to qualify for a 3.5% down payment FHA Loan is 580 credit scores. FHA Borrowers with credit scores between 500 and 579 are eligible to qualify for FHA Loans if they can put a 10% down payment on their home purchase. FHA allows up to a maximum of 56.9% debt to income ratios for FHA mortgage loan borrowers who have at least a 620 FICO credit score or higher. Any FHA borrowers with credit scores of under 620 FICO credit scores will have their debt to income ratios reduced to 43% DTI.

There is a two year mandatory waiting period after Chapter 7 Bankruptcy discharged date to qualify for FHA Loan.

A FHA mortgage borrower can qualify for a FHA Loan one year into a Chapter 13 Bankruptcy repayment plan with the approval of the Chapter 13 Bankruptcy Trustee and as long as they can provide that they have made at least 12 timely payments to their creditors.

There is no mandatory waiting period to qualify for a FHA Loan after Chapter 13 Bankruptcy discharged date.

There is a three year mandatory waiting period to qualify for a FHA Loan after a foreclosure, deed in lieu of foreclosure, or short sale.

Types Of Mortgage Loan Programs: VA Loans

VA Loans is the best mortgage loan program out today where it offers 100% financing on home purchases and cash-out VA refinancing and there are no mortgage insurance premium required. Mortgage rates on VA Loans are even lower than Conventional Loans, FHA Loans, and USDA Loans. Unfortunately, only veterans of the United States Armed Services with a valid Certificate Of Eligibility are eligible for VA Loans.

There are no credit score requirements or debt to income ratio requirements with VA Loans. It is up to the VA mortgage lender. Most VA mortgage lenders will require a 620 FICO credit scores and want debt to income ratios of no greater than 43% DTI. However, I have originated and funded VA Loans with credit scores of 580 FICO credit scores and debt to income ratios of higher than 50% DTI. I have no lender overlays on VA Loans and as long as I can get you an approve/eligible per automated findings, I can close on your VA Loan. If you need a VA mortgage lender with no lender overlays, please contact me at 262-716-8151 or email me at gcho@gustancho.com. My staff and I are available 7 days a week, evenings, weekends, and holidays to take your calls and answer your question.

There is a two year waiting period to qualify for a VA Loan after a Chapter 7 Bankruptcy discharge date.

There is a two year waiting period to qualify for a VA Loan after a foreclosure, deed in lieu of foreclosure, and short sale.

VA, unlike FHA, will exempt deferred student loans that has been deferred for 12 or more months from debt to income ratio calculations.

VA will only allow spouses of the veteran to be added on the VA Loan as a co-borrower. Non-occupant co-borrowers are not allowed on VA Loans.

Types Of Mortgage Loan Programs: USDA Loans

USDA Loans offer 100% financing on home purchases. Homeowners can refinance into USDA Loans but cash-out refinancing is not allowed with USDA Loans. Only rate and term refinancing is allowed with USDA Loans. The property needs to be in a USDA Rural Development Area in order to qualify for a USDA Loan and the mortgage borrower needs to meet the maximum household income guidelines set the USDA Rural Development in order to qualify for USDA Loans.

There is a three year waiting period to qualify for a USDA Rural Development mortgage loan after bankruptcy, foreclosure, deed in lieu of foreclosure, and/or short sale. Maximum debt to income ratios allowed with USDA Loans is 41% DTI and most mortgage lenders will require a 640 FICO credit score from USDA mortgage borrowers.

 

Types Of Mortgage Loan Programs: Jumbo Mortgages And Non-Conforming Loans

Jumbo Mortgages are also called non-conforming loans because they do not conform to Fannie Mae’s or Freddie Mac’s maximum $417,000 loan limit. Jumbo Mortgages are mortgage loans that are higher than $417,000 loan limits and have much stricter mortgage lending guidelines. Jumbo mortgage lenders will normally require a 680 credit score, no greater than a 40% debt to income ratio, three or more months in reserves or P.I.T.I., and no bankruptcies or foreclosures in the past 7 years. Most Jumbo mortgage lenders will require 20% down payment and mortgage rates on Jumbo mortgages are higher than conforming and government loans. Jumbo mortgage loans are underwritten on a case by case scenario and the Jumbo mortgage loan underwriter will look at the overall credit and financial profile of the Jumbo mortgage loan borrower.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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