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What Programs are Banks Offering


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Given the melt down over the last few years banks have really tightened up and most only offer the same few programs - Below I will try to outline and show the pros and cons for each - This should help you to see which may make the most sense for you.

 

Conventional - These loans may be called other things - if you hear Freddie Mac or Fannie Mae there is a good chance it is a Conventional loan.

These loans start with a minimum 5% down payment, obviously as with any loan you can as much down as you like above and beyond the minimum. For conventional you will have Mortgage Insurance every month if you put less than 20% down. The Mortgage Insurance is handled by a third party vendor and you must also apply and qualify for it as well. The terms can be as long as 40 years (rarely seen any more) but the most common is the 30 year and 15 year fixed. You also have the option to get an adjustable rate mortgage where the first years are fixed and after that the rate adjust based on the current market. The most common adjustable rate terms are three year, five year, and seven year fixed terms, after the fixed term the remaining years of the thirty years note will have an adjustable rate. Credit scores are very important with conventional loans as the rates are based on a sliding scale based on the level of credit score for all borrowers. You can use this loan for up to a four unit dwelling. Seller can contribute for closing costs by giving a credit as part of the sales contract. The maximum loan amount is based on regional sales prices but for most areas the limit is $417k.

 

USDA - Direct and Guaranteed

USDA is for rural areas and offers some unique features - No down payment is required for this program but both you and the property must be eligible. There is a household income cap for USDA so all income from anyone living in the home, over the age of 18 is calculated into this total regardless of the persons participation on the loan. The property must be located in a rural area and be eligible. No multi family units allowed only single family homes are allowed. Credit scores are not as big a factor for rate. There is a one time funding fee which can be added to the loan. Seller can contribute for closing costs by giving a credit as part of the sales contract. A unique thing with USDA is that you can use any difference between sales price and appraised value to pay closing costs if you choose. This allows you to finance up to the appraised value if it is more than the sales price - but all funds must be used for the loan costs. With all other loans it is the lesser of the sales price or the appraised value that determines your maximum loan amount. Direct is through the USDA office guaranteed is done through Brokers/Bankers. Direct has lower income limits but it also offers a subsidy in some cases. USDA loans come in a 30 year fixed rate ONLY

 

Govt Loans

FHA - requires 3.5% down comes in 15 and 30 year terms. Upfront MIP is charged on all FHA loans - Monthly MIP is required as well, regardless of down payment amount - Credit score does not impact rates with FHA like it does on a Conventional loan. For most first time home buyers this is the easiest loan to obtain, offering lower down payments and lower credit scores. The MIP is part of the loan and covered by FHA not a third party.BK 7 must be discharged for 2 years foreclosures must be aged 3 years (both the shortest of all programs)

 

VA - 100% financing similar to fha guidelines but does not require a down payment. One applicant must be eligible for this program based on past military experience. Credit scores not a factor for rate. there is a limit on the buyers closing costs and some things can not be paid by the buyer.

 

These are the basics of the programs - keep in mind that every bank can overlay their own guidelines to a program. Rates are not all the same on a program each bank establishes its rates daily and they can be different at different banks on a given day.

 

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The last post in this topic was posted 4984 days ago. 

 

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