Good Faith Estimates: What to Expect When You’re Borrowing

Shopping for a loan isn’t the same as shopping for shoes. Though loans do come in different sizes and cater to different needs, when you’re shopping for a loan you’ll mostly be looking at a lot of paperwork. Exciting, right? Your loan officer can explain some of these papers, but it’s important to be aware of a few steps you’ll go through before you get there. This will ensure the best fit possible.

Something that is an important part of every mortgage process is the good faith estimate (GFE). It’s an official document that is required by the Real Estate Settlement Procedures Act (RESPA) and therefore is carefully put together by the mortgage broker. Here’s why knowing how to read a GFE matters to you and your future mortgage. [Read more…]

FHA is Putting Money Back in Your Pocket

As of January 26, 2015 new borrowers who apply for an FHA mortgage will receive reduced mortgage insurance premiums. The announcement comes as part of a plan to appeal to first time home buyers and stimulate the housing market. The impact is significant; according to the Federal Housing Administration, the Department of Housing and Urban Development “estimates these lower premiums will save more than two million FHA homeowners an average of $900 annually and spur 250,000 new homebuyers to purchase their first home over the next three years.”

The rule only affects those mortgages with case numbers assigned on or after January 26, 2015. So if you’ve not yet closed on your loan, or if you are in the process of purchasing a home, make sure you know the important stipulations of this exciting announcement! [Read more…]

Breaking News: The New 3 Percent Down Home Loan

Breaking news: Fannie Mae and Freddie Mac outline a new plan that will lower down payments for first time homebuyers from 5% to 3%. The plan, which has been in the works for some time, but is just now coming to fruition, has caused quite the stir in the lending world. To give you a sense of the difference, it means that the obligatory down payment on a $250,000 home would fall from $12,500 to $7,500. Quite the difference, no?

And it’s that difference that is “banking” on (excuse the pun). The plan is attractive to potential buyers with good credit who might not have enough cash for the higher down payment price. So what else should you know about this plan? Read on to see how this exciting new loan works.

The Low Down on the Lower Down Payments

So here’s the deal: Fannie Mae and Freddie Mac, the two Government Sponsored Enterprises (or GSE’s) have loosened their guidelines to allow mortgage companies to originate these loans with lower down payments.

The basics of the loan are:

  • At least one borrower must be a new home buyer (defined as someone who hasn’t owned a home in the past 3 years)
  • Applies to conventional loans insured by Fannie Mae or Freddie Mac
  • Applies to fixed-rate, 30-year loans
  • Loans require mortgage insurance (nearly all loans greater than 80% LTV require this, so it’s not surprising)
  • Borrower must participate in homeowner counseling

If you’re a first time home buyer as per the above definition, and are interested in this lowered down payment, contact your lending professional for more information. We are already starting to see lenders releasing this program to the public.

In Their Own Words

A statement by on the Federal Housing Finance Agency’s website from Melvin L. Watt, Director of the FHFA, explains the plan on the day of its release:

​“The new lending guidelines released today by Fannie Mae and Freddie Mac will enable creditworthy borrowers who can afford a mortgage, but lack the resources to pay a substantial down payment plus closing costs, to get a mortgage with 3 percent down.  These underwriting guidelines provide a responsible approach to improving access to credit while ensuring safe and sound lending practices.

“To mitigate risk, Fannie Mae and Freddie Mac will use their automated underwriting systems, which include compensating factors to evaluate a borrower’s creditworthiness.  In addition, the new offerings will also include homeownership counseling, which improves borrower performance.  FHFA will monitor the ongoing performance of these .”

How Conventional Are You? Government vs. Conventional Loans

Those in the business of mortgages often throw around terms like they’re no big deal—FHA, reverse, balloon, government-backed, conventional. Though you might recognize that they’re all loan types, the particular differences between each might evade you.

So for all of the normal folk out there who need a refresher course, let’s start with the basics. Determining the differences between government-backed loans and conventional loan types will help you decide which loan is best suited for you and your family. Read on to understand these different loan categories so you too can start throwing around mortgage terms like a boss.

Government-Backed Loans

Government-backed loans are just that—loans that the government issues and are a type of federal assistance. This includes the FHA (Federal Housing Administration) insured loan which has become quite popular in the past years.

Because they are a form of federal assistance, government-backed loans tend to be easier to qualify for and require a lower down payment than conventional loans. Those who don’t have a lot of money to put down up front tend to gravitate towards these loans because it allows them to achieve their dream of homeownership in a time in life that cash isn’t necessarily plentiful. However, because of the higher assumed risk with such loans, FHA loans require a higher interest rate generally speaking than conventional loans.

Furthermore, those who choose an FHA loan must pay mortgage insurance which can increase monthly payments. However, despite some higher rates, many young homebuyers and first-time homebuyers will find that the flexibility of government-backed loans provides the perfect choice for their financial situation.

Other government-backed loans may be offered by the Department of Veteran Affairs for those in the military and the Department of Agriculture for rural homebuyers. These loans are catered towards very specific home buyers. If you are interested to see if you qualify for either, more information can be found on the respective government websites.

Conventional Loans

Conventional loans are issued by a lending institution like a bank which assumes the risk of the loan instead of the government. Because of the assumed risk, conventional loans require higher credit scores, and higher down payments than government-backed loans.

What’s great about conventional loans, though, is that they are highly customizable for your needs—do you want to pay off your home in 10 years? If your credits score is good enough and if you’ve got a sizeable down payment, your lender might be able to help you out! Furthermore, mortgage insurance is less common in conventional loans than in government-backed loans (remember, this still depends on the size of the down payment). It could mean, however, that your monthly payment is less.

Also, conventional lenders may offer their loans for virtually any type of property. Some properties will not be covered by government-backed loans.

Everyone has a unique loan situation. Understanding the different categories of loans will help you choose what is right for you—so talk to your loan specialist today to crunch the numbers and get expert advice on your mortgage needs.

Don’t Get Duped: Tips to Avoid Loan Modification Scams

We’ve all been desperate at one point or another. Maybe it was for a good grade, or a winning play, or even a bag of popcorn at the movies. Financial desperation, however, whether it be trying to find a job, or trying to keep a roof over your head, can be stressful beyond measure. And when you’re financially desperate you have to be especially careful to protect yourself and your family against scams.

Loan modification scams have grown exponentially in the last few years—especially since the economic downturn. Even though the markets are stabilizing, scammers are still out there ready to exploit and to ruin. Though their tactics are forever changing, the following tips hold true and can help keep your money, your home, and your investments safe. [Read more…]

What is a USDA Rural Housing Loan?

There are many different loan types out there. Some are great for the masses—loans like FHA and Conventional. Then, there are loans that have certain restrictions or criteria. VA loans require you or your spouse is a veteran. Jumbo loans are for buying homes that cost more than $417,000. Then there’s the USDA loan, a loan that’s meant for “rural” areas of the US.

Not many people know about the USDA loan because many think that you have to live way out in the boonies to get this loan type. However, the U.S. Department of Agriculture has fairly loose guidelines about what exactly “rural” means, and given some of the perks of this loan, it may be worth checking into should you find yourself needing a home loan. Let’s answer the question, “What is a USDA Rural Housing Loan”?

The Main Perk: 100 Percent Financing

The most exciting aspect of getting a USDA loan is the fact that the USDA offers 100 percent financing. You heard it, that’s no money down on your home purchase. Most other loan programs require between three and 10 percent down, so this is a biggie.

In addition to 100 percent financing, USDA loans are great because they have a lot of the same requirements and guidelines as other loans. They operate on a standard 30-year amortization schedule and offer fixed interest rates.

The Main Catch: Must Be in a Rural Zone

So, what’s the real catch to this seemingly neat housing loan? Well, the main restriction is that the home you purchase must lie in a rural housing area. You can go to the USDA’s website and see if your home is inside or outside their area. Luckily the map of “ineligible areas” looks like Cricket Wireless’s home calling area circa 2004; it’s pretty sparse. You might be surprised to find that your home is indeed in an eligible zone.

As with any loan, there are lots of little things here and there that you should know about before making any decision on which loan to get. This isn’t meant to be a comprehensive guide; just an interest piquing article. If you’d like to hear more of the nitty-gritty details of the USDA Rural Housing Loan, reach out anytime.