loans
 
Mortgage Loans
Conventional and Reverse Mortgages in Florida
239-995-0060
808-221-2540
loans FREE Mortgage Calculator

Conventional, FHA, VA Mortgage Loans and Refinances

Conventional Loans

A type of mortgage in which the underlying terms and conditions meet the funding criteria of Fannie Mae and Freddie Mac. About 35-50% of mortgages, depending on market conditions and consumer trends, are conventional mortgages. In other words, Fannie Mae and Freddie Mac guarantee or purchase 35-50% of all mortgages. Conventional mortgages may be fixed-rate or adjustable-rate mortgages.

There are two very strong arguments for using a conventional mortgage.

1) they usually offer the lowest interest rates around for those who want to do a mortgage refinance or take out a new loan.

2)  using a conventional mortgage instead of buying into a property with an FHA loan and only 3 to 5 percent equity means starting with more home equity; this is the best defense against a downturn in the housing market.

Many of today's foreclosures happen because people bought homes with little or no equity. Now they're unable to do a mortgage refinance, and selling doesn't raise enough cash to pay off their principal.  While paying a big down payment is hard, at least it doesn't leave borrowers walking on thin ice in fear of losing their homes if prices dip.

FHA Loans

An FHA insured loan is a Federal Housing Administration insurance backed mortgage loan which are provided by FHA-approved lenders. FHA insured loans are a type of federal assistance and have historically allowed lower income Americans to borrow money for the purchase of a home that they would not otherwise be able to afford. To obtain mortgage insurance from the Federal Housing Administration, a mortgage insurance premium (MIP) equal to a percentage of the loan amount at closing is required, and is normally financed by the lender and paid to FHA on the borrower's behalf. Depending on the loan-to-value ratio, there may be a monthly premium as well.

The program originated during the Great Depression of the 1930s, when the defaults rose sharply, and the program was intended to provide lenders with sufficient insurance. Some FHA programs were subsidized by the government, but the goal was to make it self-supporting, based on insurance premiums paid by borrowers. Now FHA primarily serves people who cannot afford a conventional down payment or otherwise do not qualify for PMI.

The FHA makes no loans, nor does it plan or build houses. The applicant for the loan must make arrangements with a lending institution. This financial organization then may ask if the borrower wants FHA insurance on the loan or may insist that the borrower apply for it. The federal government, through the Federal Housing Administration, investigates the applicant and, having decided that the risk is favorable, insures the lending institution against loss of principal in case the borrower fails to meet the terms and conditions of the mortgage. The borrower, who pays an insurance premium of one half of 1 percent on declining balances for the lender's protection, receives two benefits: a careful appraisal by an FHA approved appraiser and a lower interest rate on the mortgage than the lender might have offered without the protection.

FHA allows first time homebuyers to put down as little as 3.5% and receive up to 6% towards closing costs. Specific FHA lender overlays may be tighter. For example very few lenders will allow a buyer to contribute more than 3% toward allowable closing costs. If little or no credit exists for the applicants, the FHA will allow a blood relative, such as a parent, to co-sign for the loan without requiring them to reside in home with first time homebuyer. This is called a Non-Owner-Occupied Co-Borrower. Depending on the state you reside in, you may receive a discount on your State Transfer Taxes at settlement. Again, the specific FHA lender's underwriting guidelines will have their own standards. Very few lenders will fund FHA loans for buyers without a minimum 640 FICO score. For below 640 FICO scores, interest rates will be higher.

Lenders decide if they need and want private mortgage insurance. If they so decide, it becomes a requirement of the loan. PMI companies charge a fee to insure a mortgage loan; the VA insures a loan at no cost to a veteran buyer (if the veteran has a service connected disability, otherwise the veteran pays a fee for the loan guarantee); the FHA charges a fee to guarantee the loan.

VA Loans

A VA mortgage is any mortgage provided by a lending institution to an eligible veteran of the U.S. Armed Forces and guaranteed or backed by the Department of Veterans Affairs. If a default occurs, the government would repay 25 percent of the loan to the lender. A VA mortgage requires no down payment and very minimum credit. There are no additional costs at closing because the closing costs are added to the principal of the loan. The loan is 100 percent financed at a fixed rate.

  1. The VA mortgage program’s main function is to underwrite or guarantee conventional mortgages given to eligible U.S. veterans. The program does not lend money directly to borrowers; it only guarantees to lenders that they will recoup 25 percent of a loan if the borrower defaults on it. It therefore gives lenders the incentive to lend to veterans. A VA mortgage is one of the easiest mortgages to get if a person is eligible.

    The VA imposes yearly county loan limits as to how much money a veteran with full entitlement can borrow. A veteran may borrow up to the limit set forth by the VA for that particular year and that county or area. The VA then guarantees 25 percent of the loan amount up to the established loan limit.
  2. There are numerous benefits and advantages in having a VA home loan. The VA mortgage eliminates the need for private mortgage insurance (PMI), an insurance premium the borrower pays in order to protect the lender against borrower defaults. A veteran can purchase a home using the VA mortgage program without putting any money down. This is ultimately up to the borrower, though. If the borrower wants to put money down, he still can do so. Another benefit and advantage of the VA mortgage program is that it provides low, competitive and fixed interest rates.

    One misconception is that the VA mortgage program can be used only once by a qualified veteran; however, the program can be used as many times as needed, once all guidelines are followed.
  3. A certificate of eligibility is the first document that must be presented before a veteran can get a VA-backed mortgage. Active duty personnel, reservists, National Guard members, veterans with honorable discharges and some surviving spouses are all eligible for VA mortgages, provided that they meet all requirements. A person can be a veteran and still not be eligible for a VA mortgage. A bad conduct discharge from the Armed Forces disqualifies a person for a VA mortgage.
  4. A veteran can be eligible to receive a VA mortgage but still not be qualified. Qualification entails having a good credit history that is acceptable by the lender. Lenders have credit guidelines that must be met before a prospective borrower can receive a VA mortgage. An outstanding credit history is a deciding factor in getting a VA mortgage; it provides proof to creditors that an individual is financially responsible and a person a lender can trust with a mortgage.

Refinance Loans

Mortgage rates are still low enough to make refinancing worthwhile.  Saving hundreds of dollars per month on your mortgage not only saves money now, but it could help you avoid foreclosure if you're ever laid off or become ill.  Unfortunately, about half of all applicants are being rejected because they have too much debt, too little equity or insufficient incomes to meet strict new qualification standards.

Where can you get the best deal?

For most borrowers, the best deal offers the lowest interest rate on a 30-year, fixed-rate loan without paying points or more than $1,000 in fees.  (Fixed-rate loans are so cheap, there's no reason to even consider an adjustable-rate mortgage.)  Independent Mortgage brokers can often get you the best deal.  They have access to multiple lenders and less overhead than the big banks and lending companies.

Don't be discouraged by rejection.

If you're rejected, you'll receive an "adverse action" letter stating why you were turned down.  Don't get upset -- get busy.

If the appraised value on your home is too low to warrant the size of the loan you need, dig up the cash to make it work or look for other options.

If your problem is a low credit score, you can fix that. To get the best rate, you'll need a score of 740 or better.  See the section regarding credit scores in this web site.

A rejection from one lender does not mean you'll be rejected by all lenders.

Do you have enough equity? 

Most lenders won't refinance your mortgage unless you have 20% equity in your home -- a tough criterion to meet if you live in an area where property values have fallen.

You can overcome the equity problem by applying for one of the federal government's three big loan programs. You'll need:

  • Just 5% equity to qualify for an FHA loan.
  • Zero equity to qualify for a VA loan.
  • Less than zero equity -- you can actually owe more than your home is worth -- and still qualify for a loan modification program.
  • Seniors, 62 years and older, may be eligible for Reverse Mortgage which generally requires no out front fees.

Only refinance if you can decrease your interest rate by one percentage point or more.

This is a good rule of thumb to follow when deciding whether you've found a worthwhile deal:  Reduce your interest rate by one percentage point, and you'll reduce your monthly payments by $65 a month for every $100,000 you borrow.  Check the mortgage calculator at the top of this page.  Your broker can calculate exactly how much your payment will decrease and how long it will take to recoup any fees and closing costs. A year or less is ideal. Two years or more is too long and indicates the fees are too high for the interest rate you're being offered.

Forget about a cash-out refinancing.

Even if you have lots of equity in your home and wish to borrow an extra $20,000 or $30,000 with a low-cost mortgage and use that money to repay credit card bills or other high-cost debt - ask your Broker if that is a deal breaker.  Currently lenders are reluctant to do cash-out refinancings because those loans have been more prone to default for a variety of reasons. Trying to borrow more than you need to pay off your existing mortgage will increase the odds of being rejected dramatically.

Your income and expense budget is vital.

Lenders consider the amount of debt (i.e. credit cards, loans) to be just as important as your credit score.  They usually want your regular monthly bills to consume no more than 36% of your pretax income.  They'll count all the payments you make on auto loans, student loans and credit cards, as well as alimony, child support and the projected cost of the mortgage you're seeking.If those expenses consume more than 36% of your income, look for the quickest and easiest ways to trim those costs.  Maybe you can pay off a car loan a few months early or pay down the balance on a credit card to reduce the minimum payment. Anything that lowers your debt-to-income ratio to less than 36% will greatly improve your chances of being approved.

  web design by AI Design Studio
loans