Loan Programs
First Time Home Buyer Loan Programs
Conventional Loans
Conventional loans are secured by government sponsored entities such as Fannie Mae and Freddie Mac. Conventional loans can be used to purchase or refinance homes with first and second mortgages on single-family and up to four unit homes. Fannie Mae and Freddie Mac’s first time home buyer loan program is a single family, first mortgage loan, with a limit of $766,550 (amounts vary by county and may be as high as $977,500). This limit is reviewed annually and, if needed, adjusted to reflect changes in the national average price for single-family homes.
Jumbo Loans
Loans larger than the limits set by Fannie Mae and Freddie Mac are called jumbo loans. Because jumbo loans are not funded by government-sponsored entities, they usually carry a higher interest rate and may some additional underwriting requirements. There are tools available to work around having a jumbo loan which includes using a combination of first and second mortgage loans, and some first time home buyer loan programs may be available. The benefit of this may include a savings on rate, paperwork and/or reserves or cash you are required to have left over after closing.
VA Loans
The Department of Veterans Affairs (VA) guarantees loans to help qualified veterans, reservists, and active-duty armed services members finance their homes, and for many veterans this is the first time home buyer loan program of choice.
Some of the benefits of VA loans may include:
- A no down payment option.
- Flexible qualifications for income, debt and credit requirements.
- Down payment and closing costs that may be funded by a gift, grant, or secured loan.
- Possible higher loan limits.
FHA Loans
The Federal Housing Administration is entirely run by the government and was established to improve housing standards and opportunities for home buyers.
True, the FHA offers a first time home buyer loan program, although it is not only for first time buyers. The FHA can also be an excellent solution for refinancing or for another home purchase. Each home must be occupied by the borrower upon closing, and only one FHA loan can be held by a borrower at a time.
The ability to offer more flexible loan requirements comes by the way of mortgage insurance requirements on the loan. Mortgage insurance is to insure the lender against default of the borrower, so this offers the lender some security to be able to offer more aggressive requirements.
Some different types of FHA loans include:
Section 203(b)
- Available for single family homes, but can extend to 1-4 unit properties.
- Flexible credit requirements.
- As little as 3.5%* down payment required.
- *FHA Payment example: Stated rate may change or may not be available at time of rate lock. If you bought a $350,000 home with a down payment of 3.5%, for a loan amount of $337,500, on a 30 year loan at a fixed rate of 6.75% (7.846% Annual Percentage Rate), you would make 360 monthly payments of $2,189.00. Payment stated does not include taxes, homeowners insurance, and mortgage insurance which will result in a higher payment
- Gift funds can be used from family members as down payment.
Section 234(c)
- Specifically for Condominium units.
- Qualifications for the borrower match the same as a Single family dwelling.
- Condominium Projects must also be FHA approved (on the Approved Condo List).
Section 203(k), and 203(k) Streamlined)
- This program is for property rehabilitation.
- Encourages properties to be upgraded and offers a chance for neighborhoods to be revitalized.
- One loan is included for both the acquisition of the property and for remodeling costs.
- Appraised value is determined with the remodeling completion in mind.
- A 203(k) consultant is required.
HECM – Reverse Mortgage
- Beneficial to those 62 years and older for refinance and for purchase.
- Allows access to equity with flexible terms.
- May cancel out all mortgage payments.
- Borrowers are required to pay their own property taxes and homeowner’s insurance.
This ad is not from HUD or the FHA and was not approved by HUD or any government agency.
Fixed rate vs. Adjustable Rate
Fixed rate mortgages can be amortized over a variety of loan terms. This offers stability of payment for budgeting for the homeowner over the life of the loan. While the longest term offers a lower payment, some consider the shorter terms to be sure the loan is paid off by a particular goal time such as retirement. Often the lower terms offer a lower rate incentive as well, which is attractive to first time home buyers working toward financial goals.
The loan terms may include:
- 30 Year
- 20 Year
- 15 Year
- 10 Year
Adjustable rate mortgages, or ARM loans, may initially begin with a fixed rate then adjust after a period of time determined by the loan program. Once the loan moves into the adjustable period, the rate will be determined by the movement of the market and can adjust both higher and lower. There are annual and life of the loan caps in place to offer some stability or time to analyze your strategy with your mortgage and the home investment.
The initial period of the loan is fixed then turns into an adjustable loan. Some examples of ARM loans include:
- 10/1
- 7/1
- 5/1
- 3/1
Borrowers may consider an ARM loan under the following circumstances:
- The borrowers plan to be in the home only a short period of time before selling or refinancing.
- Want to purchase a larger home initially, understanding that their income will increase in the future.
These loans need to be carefully explained so that the borrower understands all the positives and possible negatives of these loan programs. Contact us today for a free consultation.
Rhonda is an extremely professional and efficient agent, very pleasant and easy to business with. She communicates very efficiently so you are aware of the status of your project at all times.