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Frequently Asked Mortgage QuestionsFAQ Mortgage Question

1. What is a VA Home Loan
VA Loans are for military veterans, service members, and eligible spouses. Guaranteed (insured) by VA and carry very competitive interest rates. VA loans have the reputation of being the best deals in the mortgage market.

2. What is a USDA Home Loan
USDA Rural Development loans help low and moderate-income families buy a home with no down payment. USDA loans are another type of zero down loan program. A borrower’s household income must not exceed certain limits set by USDA program guidelines.

Furthermore, the property must be USDA-eligible, which is determined primarily by its location.

Most eligible properties are located in rural areas. Sometimes it’s possible to find an eligible home within short commuting distances of cities.

3. What is an FHA Home Loan
FHA purchase loans are low down payment types of loans. They only require 3.5% down which makes them very popular with first time home buyers.

FHA guidelines also permit down payment gift funds from family members, employers, housing grants, churches or other charitable organizations.

FHA loans require a one-time, upfront mortgage insurance premium (UFMIP) when the loan closes. After that, a smaller mortgage insurance premium (MIP) is added to the monthly mortgage payment.

States, cities and regional housing authorities also offer first time home buyer programs.

Many states insure loans in much the same way the federal programs do. Some states also offer financial assistance programs to help folks clear the initial hurdle of putting together enough money for a down payment.

Generally speaking, regional programs tend to focus on homeownership for low-income residents.

They might also create incentives for folks to buy and repair homes in target neighborhoods. For example, cities may offer monetary assistance and tax credits for public employees — such as firefighters — to buy homes in older neighborhoods.

These incentives are aimed at urban revitalization. Some of programs states and cities increase homeownership include:
• Down Payment Assistance (DPA) Programs
• Closing cost assistance
• State tax credits
• Grants
• Job-specific programs (e.g. for teachers, firefighters)

Types of Home Loans: Conventional Home Loans
Fannie Mae and Freddie Mac set conventional loan guidelines because they invest in (buy) a lot of mortgages on the secondary market.

A conventional loan has the following characteristics:
• Meets guidelines set by Fannie Mae and Freddie Mac.
• Insured by Private Mortgage Insurance (PMI) if the loan is less than 80% loan to value (LTV).
• It does not require upfront fees.
• Not insured nor guaranteed by FHA, VA or USDA.

By setting requirements such as down payment amounts, acceptable credit scores, and loan limits, GSEs are better able to control the quality of loans they will buy.

One of the biggest influences GSEs have on the overall mortgage market is their conforming loan limits.

This is the maximum loan amount for a mortgage that can still be classified as a conforming loan. Loan limits are updated annually to reflect average current home prices in the United States.

4. What is a Conventional 97 Home Loan (Fannie Mae)
This is a low down (3%) loan for first time home buyers.

There’s no income limit. As you might expect, the loan amount must not exceed conforming loan limits. However, Conventional 97 does allow loans at the higher end of the conforming loan limit range in high-cost areas.

The mortgage must be a fixed rate; no adjustable-rate mortgages allowed. With the exception of manufactured homes, nearly all one-unit property types are allowed.

5. What is a HomeReady Home Loan(Fannie Mae)
HomeReady is another low down (3%) loan from Fannie Mae, this time for low to moderate-income borrowers.

There’s no first time home buyer restriction. However, income limits apply.

To be eligible, applicants must take an online (or in-person where available) homeowner education course. The mortgage must be set at a fixed interest rate.

6. What is a Home Possible Home Loan + Home Possible Advantage (Freddie Mac)
Freddie Mac offers two versions of their low down (3% to 5%) mortgage products.

Home Possible programs are not restricted for first time home buyers, but first-time buyers must take an education course.

Loan limits are capped at the regular conforming loan limit; no high-cost area adjustments can be made.

Jumbo Home Loans
Jumbo loans are non-conforming types of loans. That’s because Jumbo loans exceed conforming loan limits. Jumbo loans are most often used by long-time homeowners; “move up” borrowers use built-up equity from their original home as a down payment for their next home. Some additional characteristics of jumbo borrowers include:
• Lower debt to income (DTI) ratios
• Higher credit scores
• Liquid assets to cover 6 months of reserves

7. What is a Jumbo Home Loan (not government-insured)
Because these loans are bigger, qualifying for them is tougher than government-insured or conventional mortgage products. 20% down payments are expected. In some cases, a 10% down payment may be possible but only for borrowers with outstanding credit.
Self-employed borrowers will need to prove their income by providing W2 tax forms from the last two years. It’s’ quite common for the self-employed to provide business P&L statements for evaluation by an underwriter.

8. What is a VA Jumbo Home Loan
Veterans can still use their VA Benefit for home purchases that exceed VA loan limits. However, two additional requirements must be met. First, the veteran must come up with a down payment of 25% of the loan amount over the conforming loan limit.
Say a home price is $517,000 and the county loan limit is $417,000, the veteran would pay 25% of the $100,000 difference, which is $25,000. Second, they must pay the VA funding fee in cash for loans greater than the conforming loan limit and less than $1 million.

Reverse Mortgages

9. What is an FHA Reverse Mortgage Loan
Home Equity Conversion Mortgage (HECM) is the long-winded, bureaucratic name for FHA’s reverse mortgage. Borrowers must be seniors, at least 62 years-old. For seniors who’ve built up home equity over the years, reverse mortgages can turn that equity into cash.
Essentially, the lender is paying homeowners each month, slowly drawing down on the equity. There’s also an option for a lump sum payout.
Reverse mortgages are a type of home loan that provides a way for seniors to remain in their homes while tapping into the equity, typically their largest financial resource. Furthermore, Seniors continue to own their homes.
When they move out or pass away, their heirs can either pay off the lender or sell the home (the proceeds of which pay off the loan). Borrowers must meet with a HUD-approved counselor prior to taking out a reverse mortgage.

10. What is a Private Reverse Mortgage Loan
HECMs are by far the most commonly held reverse mortgages. Some financial institutions create their own line of reverse mortgage products. Private reverse mortgages can come in handy when the desired loan amount exceeds FHA’s loan limits.
Types of Home Loans: Refinance

11. What is a VA Streamline Home Loan
Wow, here’s a term for you: Interest Rate Reduction Refinancing Loan (IRRRL). Yep, that’s the long title for VA’s Streamline refinance. Despite a very long name, IRRRLs represent a very short and efficient means of refinancing an existing VA loan into a new VA loan (VA-to-VA) with a lower interest rate. There’s less required documentation to get this loan funded. For example, no new appraisal is required. And all that extra paperwork that went into the original loan file — like pulling a Certificate of Eligibility (COE) — is also not required. That’s why they call it “Streamline”.

12. What is a VA Refinance Home Loan (Non-Streamline)
For veterans who currently have a non-VA mortgage, they may refinance into a VA loan. VA loans can be taken out for the full appraised value (100% LTV) of the home. If there’s equity in the home, it can be cashed out (not an option with IRRRL above).
Borrowers will go through a full underwriting process so things like debt-to-income ratios, credit scores, and a property appraisal are required. There will also be VA Funding Fee.

13. What is an FHA Streamline Home Loan
Borrowers with existing FHA-insured loans may change their rate and term with an FHA Streamline refinance. As you may have guessed, the word “streamline” refers to faster underwriting times due to reduced documentation.
For example, in most cases, no appraisal or credit report is required. Certain fees and closing costs are still a part of the deal. So it’s not a freebie. Furthermore, the purpose of a streamline loan is to reduce monthly mortgage payments, not to enrich the borrowers.
That’s why there’s a maximum $500 cash out. The main benefit – and reason for undertaking an FHA Streamline – is to reduce monthly payment in order to save money over the life of the loan.

14. What is a Home Affordable Refinance Program (HARP) Home Loan
HARP exists to help borrowers refinance homes that have little or no equity. Even underwater homes may be eligible. It’s a program that came about in response to the housing crash that started around 2008. Borrowers with a track record of making mortgage payments on-time and in-full may be eligible for some relief.
The HARP program can help change the term and/or lower the loan’s interest rate without additional mortgage insurance. There’s less paperwork: no appraisal or underwriting is required. HARP is only available to refinance mortgages owned by Fannie Mae and Freddie Mac that closed prior to May 31, 2009.

15. What is a USDA Streamline Refinance Home Loan
Borrowers with existing USDA loans can refinance them into a new USDA loan (USDA-to-USDA) with a lower interest rate or new term. The existing mortgage must be either a 502 Direct or 502 Guaranteed USDA loan. Just like VA and FHA Streamlines, documentation is significantly reduced. No credit report, appraisal or property inspection is required.
Borrowers must be current on payments with no blemishes within the last 12 months. There is no cash-out option.

16. What is a Home Affordable Modification Program (HAMP)
HAMP is a loan modification program that can lower the interest rate, extend the term or lower the principal balance of an existing mortgage. Its purpose is to help homeowners impacted by financial hardship such as job loss, serious illness or disability.
The goal is to reduce a borrower’s monthly mortgage payment to 31% of their pre-tax (gross) monthly income. HAMP can only modify existing mortgages owned by Fannie Mae and Freddie Mac that closed prior to January 1, 2009.

Types of Home Loans: Renovation & Repair Home Loans

Renovation loans are taken out by borrowers under two basic situations. The first scenario involves current homeowners (refinance) and the second scenario covers home buyers (purchase).
Renovation loans fund a purchase or refinance and simultaneously provide cash to carry out the rehab work. In both scenarios, renovation loans are all-in-one transactions.
They do not require a borrower to combine a first lien and a second mortgage or home equity line of credit (HELOC). Loan amounts are based on the estimated property value after renovation work is completed.

17. What is an FHA 203k Renovation Home Loan
Types of FHA renovation loans include a Standard 203k and a Limited 203k. The Standard is for larger projects like rebuilding a home from the ground up. These projects exceed $35,000.
For smaller repairs, upgrades, and improvement, the Limited will provide up to $35,000. Work must be completed by HUD-approved contractors.
This loan requirement is a little less attractive to DIY-ers. Money set aside for renovation work is held in a renovation escrow account and is released when repairs are completed.

18. What is a HomeStyle Renovation Mortgage Home Loan (Fannie Mae)
HomeStyle provides funds for the purchase or refinance activity with accompanying funds for home improvement. Loan amounts can go up to 50% of the as-completed appraised value of the property.
While approved contractors will handle most renovations, HomeStyle allows borrowers to perform up to 10% of the project’s as-completed value.

19. What is a Freddie Mac Renovation Mortgage Home Loan
Freddie Mac’s renovation product is very similar to Fannie’s HomeStyle program. One unique feature: the program allows funding for owner-occupied properties (i.e., investments and second homes). For this reason, investors prefer it.

More Types of Home Loans

Interest Rates
Fixed-Rate Mortgage (FRM) – interest rate does not change; predictable monthly payments.
Adjustable-Rate Mortgage (ARM) – interest rate changes depending upon bond market prices; monthly payments can go up or down.
Interest-only home Loan – monthly mortgage payments apply to the interest portion of the loan but not the principal.

Loan Terms
10-year Mortgage – lowest interest rate, highest monthly mortgage payment.
15-year Mortgage – lower interest rate, higher monthly mortgage payment.
30-year Mortgage – higher interest rate, lower monthly mortgage payment.
Balloon Loan – mortgage payments are amortized over a long timeframe, typically 30 years. The loan is called (due) all-at-once in 5 or 7 years. Balloon loans are a lot less common than they used to be.

Mortgage Down Payments
• Zero Down Loan – VA and USDA
• Low Down Loan – FHA, Conventional at 3%, 3.5% or 5% down
• 20% Down Loan – Conventional programs that do not require PMI

What is the Down Payment Assistance Programs
• Gift Funds – FHA purchase loans (allows many types of donors) and Conventional loans (blood or by marriage donors only)
• Mortgage Grants – typically offered by states, cities and regional housing authorities as an incentive for urban renewal or to promote homeownership in underserved areas.
• Mortgage Tax Credits – typically offered by states, cities and regional housing authorities.

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