With all of the different options available, it’s important to understand the distinction between available mortgage products. What type of mortgage is right for you? 30 year fixed, 15 year fixed, ARMs, FHA, Conventional, Conforming, Non-Conforming. Let’s take a brief look at all of these:
These are the main factors that will determine the type of loan we will target:
- Is this an investment property, second home or will you live in the property? “Owner Occupied vs. Non-Owner Occupied”?
- How is your credit? Is it perfect, or do you have issues in the last few years? Bankruptcy, foreclosure, short sale?
- What are your credit scores?
- If you are purchasing a home, what is your desired down payment?
Answers to these questions will help us determine the right loan options for you. Look at the tabs below to see the types of mortgages available and the primary features of each group:
- FHA loans/VA Loans.
- Eligible for Owner Occupied properties only.
- Down payments as low as 3.5%.
- Refinances up to 97.75% of the current appraised value.
- Interest rates comparable to, or often better than conventional alternatives.
- Minimum credit score of 600 required (exceptions may apply).
- Fewer pricing adjustments for lower credit scores.
- Borrowers must have open and active credit.
- All BKs must be discharged min 2 yrs with reestablished credit.
- Foreclosures (including short-sales) must be over 3 yrs old.
- Easier to use gifts for down payment and closing costs.
- No prepayment penalties.
- FHA loans may be assumable.
- FHA charges a one-time Up Front Mortgage Insurance Premium, usually financed into the new loan amount.
- FHA also charges an ongoing mortgage insurance fee with each monthly payment. This may be permanent depending on your particulars.
- Maximum Loan Amount $417,000 to $625,500. Limits determined by County. See chart below.
- Mortgages that are not guaranteed or insured by the federal government. Also referred to as “Agency” (Fannie Mae or Freddie Mac) loans.
- Eligible for Owner Occupied, Non-Owner Occupied and Second Home properties.
- Generally require larger down payments (5-10% minimum).
- No Mortgage Insurance for Loan To Value (LTV) <= 80%.
- Loans > 80% LTV require Private Mortgage Insurance (PMI company approval as well).
- No prepayment penalties.
- Maximum conforming loan limit is $417,000 for SFRs in CA. High Balance programs available up to $625,500. Limits determined by County.
- Requires excellent credit. Minimum credit score of 600, restrictions apply.
- Lowest rates available for borrowers with credit scores over 740. Lower credit scores require loan level pricing adjustments (LLPAs) raising the final rate or closing costs (adjustments are less costly for FHA loans).
- Fixed rate, adjustable rate program options available.
- All loans that don’t fit into the previous categories.
- Loan Amounts >= $625,500 (for Single Family Residences, maximum loan amount determined by County).
Ok, so there are FHA loans, Conventional loans and Non-Conforming Loans. But, which one is right for me? Here’s a breakdown that should answer some of your questions:
Why would I want to do a Conventional loan?
- This is the optimal type of loan, and if you qualify, carries the best terms and interest rates.
- You are purchasing a new home and have the minimum 20% down payment (some can qualify with as little as 5-10% down with PMI).
- You are refinancing and have at least 20% equity in your home (based on current appraised value).
- You want to avoid Mortgage Insurance (MI). All FHA loans require an Up Front Mortgage Insurance Premium and charge an additional annual premium for a minimum of 11 years. When purchasing a new home, if you have at least 20% down payment, you will avoid mortgage insurance altogether with a conventional loan.
- If you are financing a second home or an investment property (FHA does not allow these property types).
Why would I want to do an FHA loan?
- FHA requires as little as 3.5% down payment towards the purchase of a new home, so if you don’t have a 20% down payment, this is a great alternative.
- FHA refinances also allow you to finance up to 97.75% of the appraised value. Conventional loans do not. The downside is the FHA mortgage insurance. If you have to refinance to get out of a bad loan and your property value is down, it could be worth it.
- FHA has more relaxed credit guidelines, so if you have credit issues and can’t qualify for a conventional mortgage, FHA may be the right way to go.
- Borrowers with little or no open and active credit showing on their credit report can use “alternative” trade lines to qualify (rents, utility bills, etc.).
- Borrowers are not required to have reserves (extra money in the bank).
FHA “High Balance” Loan Limits
Why would I want to do a Non-Conforming or Jumbo loan?
- Loan amounts for SFRs are currently capped at $625,500 on FHA and Conventional loan programs, so if you need a larger loan amount, you need to consider a non-conforming loan program.
Call Choice One Mortgage today at (800) 224-9999 to learn more about the types of loans you should be looking at.