Types of Mortgage Programs

When you apply for a mortgage, there are many types of loan products available, though not all of them will be applicable to your situation. A variety of factors will determine which loan product is right for you and also which loans you qualify for.

When you start the financial process, you will soon have to answer:

  • Is this a purchase or refinance?
  • Do you want an adjustable-rate mortgage or a fixed rate mortgage?
  • What are your future plans? How long do you plan on staying in the home?
  • How about the term of the loan? Three year ARM? Ten-year fixed? Thirty years?
  • What loan amount do I qualify for?
  • What interest rate does my credit score qualify me for?
  • How much money do I have to put down?

Ocean’s Lending is prepared to help you answer these questions and guide you through a process that many find intimidating. Please feel free to look through our menu of loan products or contact us to find out more.

The financial security of a 30-year fixed rate mortgage makes this the preferred loan product for many borrowers. The fixed-rate of this mortgage product is helpful for those who find budget planning important, and with rates at historical lows, this is can be especially appealing to those who plan on staying in the same house for a long time. Monthly payments will only adjust if a change is made to your homeowner’s insurance or property taxes, or both if those items are paid with your mortgage each month.

While the 30-year term will keep the payments lower than a shorter-term loan, the drawback is that you pay more interest over the length of the loan compared with shorter-term loans. In the early years of the mortgage – when the largest portion of your payment is going toward interest – you are not building significant equity in the property.

This is why it is important to consult with a mortgage professional. An experienced loan officer will review your short-term and long-term goals with you. This will help determine if a fixed rate or adjustable rate mortgage is right for you, as well as the term of the loan. Our loan officers are ready to help you make this decision; contact us today!

In order to promote home ownership, the Federal Housing Administration (FHA) offers FHA loans, which are backed by the FHA and provided by FHA-approved lenders. It is one type of federal assistance that has helped homeowners since 1934. With less stringent guidelines, lenders are able to issue loans on mortgages that wouldn’t normally fit conventional underwriting requirements, allowing more people to become homeowners. They tend to be more lenient on areas such as credit, funds to close and co-borrowers. At the same time, lenders are protected from losses suffered if the home goes into foreclosure because these loans are insured by the federal government.

An FHA loan may be right for you if:

  • You are buying your first home. Your down payment can be as low as 3.5% of the purchase price, and most of your closing costs and fees can be included in the loan. This is available on 1-4 unit properties.
  • You want a fixer-upper. FHA has a loan that allows you to buy a home, fix it up, and include all the costs in one loan. Or, if you own a home that you want to re-model or repair, you can refinance what you owe and add the cost of repairs – all in one loan.
  • You are a senior living in a home that you own or with a low loan balance. People fitting this profile may be well-suited for an FHA Reverse Mortgage might be right for you. It lets you convert a portion of your equity into cash.
  • You want to make your home more energy efficient. You can include the costs of energy improvements into an FHA Energy-Efficient Mortgage.
  • You need financing for mobile homes and factory-built housing. FHA offers two loan products – one for those who own the land that the home is on and another for mobile homes that are – or will be – located in mobile home parks.

A Unique Solution

Unlike most loan programs, FHA does not have specific credit score requirements. Although a high credit score may assist in getting the mortgage approved, a low score is not automatically cause for denial. If the credit scores are low, then it is up to the borrower to demonstrate his/her ability and willingness to pay the loan back. This allows the borrower to explain the circumstances surrounding the credit difficulties and have that explanation considered in the underwriting process.

Because of FHA’s leniency, some borrowers with past credit problems elect to use FHA for loans when they have a substantial down payment rather than getting a higher interest rate conventional loan. FHA tends to be more flexible than Conventional financing in the money needed to purchase the home.

In an FHA mortgage the customer must put at least 3% of the sales price into the transaction. Some of this money may be used for down payment and the rest for closing costs . Keep in mind, however, that the total cost to close on an FHA is commonly over 3%. With the down payment, closing costs, money to establish escrows for taxes and insurance plus interest to finish out the month of closing, the total costs can be closer to 6 or 8% of the sales price.

The interest rate that you select will also have a bearing on the total costs. If you select a lower rate so that you can reduce your payment, you may end up paying additional money towards “points”. At the same time if you are comfortable with a slightly higher payment you may find a lender that is willing to reduce the costs to close in favor of a higher interest rate.

FHA allows the borrower to get the funds necessary to close from several sources. They include such areas as personal savings, gifts, grants, loans from retirement accounts and seller contributions.

Required Disclosure

These materials are not from HUD or FHA and were not approved by HUD or a government agency.

Ocean’s Lending specializes in VA loans, which are guaranteed by the Department of Veterans Affairs (VA). These loans were established to provide transition assistance and other benefits to men and women who served or are serving in the Armed Forces of the Nation. This includes the Army, Navy, Air Force, Marines, Reservists, National Guardsmen, and certain surviving spouses. Also, if you are a disabled veteran, you may qualify for additional benefits on a VA home mortgage loan.

Benefits of a VA Loan

  • No money down for loans up to $417,000
  • No PMI (Private Mortgage Insurance)
  • Government limits the amount of closing costs and origination fees lenders can charge, as well as appraisal fees
  • Streamlined refinance loans can be closed in 7 to 10 days
  • Protection built into ARM products that caps the annual allowable rate increase
  • There is no limit to the number of times a veteran may use the program

In addition to these benefits, the VA Home Loan program offers default assistance to veteran borrowers in financial difficulty through a higher level of service and a greater range of alternatives to avoid foreclosure. Delinquency and foreclosure rates for VA loans are substantially less than for FHA loans

The VA Funding Fee

The Veterans Administration assessed a Funding Fee to all VA loans between .5% and 3.3% of the loan amount. The fee is added into the amount of the loan to be paid over the life of your VA home mortgage loan. The VA Funding Fee replaces the much higher priced Mortgage Insurance required when you get a conventional home loan. If you are a Disabled Veteran, you may qualify to get the fee waived completely.

Qualifying for a VA Mortgage Loan

The VA offers excellent qualifying standards. The VA does not use credit scoring in their analysis of the loan. Even if you have experienced some financial difficulties in your life that caused your scores to be low but have maintained a good payment record over the past year or so, you may qualify for a VA mortgage loan. This can be a tremendous savings compared to the cost of conventional loans when the borrower’s credit scores are low.

VA Mortgage Loans may be refinanced

VA mortgage loans have built in features allowing a loan to be refinanced to a lower interest rate without all of the criteria normally associated with a conventional loan. This is called an Interest Rate Reduction Loan; the veteran can secure a lower interest rate without any credit checks, appraisal, and income or asset verification and can roll the costs of the transaction into the loan so there are no out of pocket costs.

Improve your life by cashing in on your home’s equity

Whether seeking money to finance a home improvement, pay off a current mortgage, supplement their retirement income, or pay for healthcare expenses, many older Americans are turning to “reverse” mortgages. They allow homeowners 62 years and older to convert part of the equity in their homes into cash without having to sell their homes.

In a “regular” mortgage, you make monthly principal and interest mortgage payments to the lender. But in a “reverse” mortgage, you receive money from the loan and generally don’t have to pay it back for as long as you live in your home and continue to follow the loan guidelines. It is important, however, to keep in mind that payments for taxes and insurance still must be paid. The loan must be repaid when you die, sell your home, or no longer live there as your principal residence. Reverse mortgages can help homeowners who have a considerable amount of home equity and would like to stay in their homes and still meet their financial obligations.

Three Types of Reverse Mortgages

The three basic types of reverse mortgage are: (1). single-purpose reverse mortgages, which are loans offered by some state and local government agencies and nonprofit organizations; (2). federally-insured reverse mortgages, which are known as Home Equity Conversion Mortgages (HECMs), and are backed by the U. S. Department of Housing and Urban Development (HUD); (3). proprietary reverse mortgages, which are private loans that are backed by the companies that develop them.

Single-purpose reverse mortgages generally have very low costs. But they are not available everywhere, and they only can be used for one purpose specified by the government or nonprofit lender, for example, to pay for home repairs, improvements, or property taxes. In most cases, you can qualify for these loans only if your income is low or moderate.

Loan Features

Reverse mortgage loan advances are not taxable and may not affect Social Security or Medicare benefits. We recommend you speak with your benefits plan administrator and tax advisor for more information on how a reverse mortgage will impact your situation.You retain the title to your home and do not have to make monthly principal and interest mortgage repayments. The loan must be repaid when the last surviving borrower dies, sells the home, or no longer lives in the home as a principal residence. The borrower continues to pay all property related fees, taxes and insurance.

∗ These materials are not from HUD or FHA and were not approved by HUD or a government agency.

Counseling Required- https://entp.hud.gov/idapp/html/hecm_agency_look.cfm

The United States Department of Agriculture, or USDA, has developed a home loan guarantee program, aimed towards fostering rural development and helping qualified borrowers obtain mortgages in rural areas. With its many benefits and easier qualifications, USDA loans are a viable option for many people, including low-income families who may not otherwise be able to afford a home.

Below are some of the benefits:

  • No down payment required: Whereas many conventional loan programs require a 20% down payment, many USDA loans allow zero % down payment. With the ability to receive financing up to 100% of the appraised home value, homebuyers don’t have to spend any money out of pocket.
  • Competitive 30-year fixed interest rates: With the guarantee of the federal government, a lender can offer the lowest interest rates to qualified individuals and families.
  • Flexible credit guidelines: Although a credit report must be pulled, the USDA Rural Development program has less stringent credit guidelines, allowing potential homeowners with poor credit the ability to qualify for a home loan.
  • No maximum purchase limit:The USDA Rural Development program has no maximum purchase price limit. However, a lender will still determine the maximum amount of loan each applicant is eligible for based on ability to repay.

It is important to note that USDA loans were not exclusively designed for single-family housing. The loans may be applied to new homes; pre-existing homes; condominiums; townhouses; land and the cost of building a home; commercial property; and farms and equipment.

While there are many benefits of USDA loans, there are also certain criteria you must meet in order to be eligible, including location of the house, household income, credit history, and number of dependents claimed.

The team at Ocean’s Lending is well-versed in USDA guidelines, so speaking with one of our loan officers will help you get on the right track. You may also visit the USDA website to find houses located in eligible rural areas defined by the USDA.

Getting a mortgage can be confusing. There are lots of terms you may not be familiar with and of course major decisions to be made. Basically, loans fall into two main categories: government and conventional. Government loans include FHA loans (Federal Housing Administration), VA loans (Department of Veterans Affairs) and USDA rural development (United States Department of Agriculture). All other mortgages are considered conventional.

When you go with conventional financing, the terms and conditions of your mortgage must meet the funding criteria of Fannie Mae and Freddie Mac, two government-sponsored enterprises established to secure mortgages in the form of mortgage-backed securities. These mortgages may be fixed-rate or adjustable-rate mortgages.

There are several benefits to having a conventional mortgage. Because individual lenders – not the federal government – set the fees and rates, conventional financing can often have both lower fees and rates. Additionally, the lender may allow borrowers to offer collateral other than the property mortgaged. This is a particular benefit to borrowers with limited access to credit.

For some, though, conventional financing may not be feasible. Conventional loans generally require larger down payments than government-backed loans, making it difficult for many borrowers who do not have enough money saved to spend out-of-pocket. Interest rates are also set by individual lenders and can exceed those of FHA and VA loans, both of which are government-backed. However, for the most part, rates for conventional loans and for FHA loans do not vary significantly, as they are both competing in the same market.

Additionally, if the loan has an LTV (loan-to-value) greater than 80 percent, a borrower is required to purchase Private Mortgage Insurance, which can be paid monthly. This is not insurance for you – the homebuyer. This is insurance for the lender in case of defaulting on your loan. Please note that once your LTV drops below 80, you will also be able to drop the PMI, making conventional financing attainable for more people.

With all of these factors to consider, it is not easy to decide which type of financing is right for you. One of our mortgage professionals can assist you in making this decision. A brief application will help determine what you are eligible for , and a full application will provide further details. Your loan officer will be able to review your options with you and show you how the costs break down compared with one another, allowing you to make an informed decision on your home loan.

For a loan to be considered a “jumbo” mortgage, the loan amount must exceed conventional conforming loan limits, which are set by two government-sponsored enterprises – Fannie Mae and Freddie Mac. These two corporations set the limit on the maximum value of any individual mortgage they will purchase from a lender. Currently, the conforming loan limit is $417,000 for a one-unit home – meaning, if you need to borrower half a million dollars to buy a million-dollar home, you would need a jumbo mortgage.

It is also worth nothing that some conforming loan limits may exceed $417,000.

In some cases, there are loan products that have elevated conforming loan limits, which give borrowers the ability to obtain mortgages exceeding the normal $417,000. The availability of these loans varies by county. The U.S. Housing Department has a useful tool on their website where you can find limits in each state/county.

For further information on jumbo loans, please contact us. Our mortgage professionals will review your loan options and help you figure out whether a jumbo loan is right for you.

Have you been thinking about adding a deck to your home or installing new windows? Do you have big dreams for that fixer-upper you’re considering purchasing?

If so, the Department of Housing and Urban Development (HUD) has a program that would allow you to get these home improvements done. The Section 203(k) program is HUD’s primary program for the rehabilitation and repair of single-family properties. This program is sometimes referred to as a “renovation loan.”

Section 203 (k) loans are available through FHA-approved lenders, meaning that this is not available through conventional financing. The program was created to promote and facilitate the restoration and preservation of the nation’s existing housing stock, as well as to help revitalize lower income communities.

This type of loan is different from other models of financing, which typically involve supplying mortgages for properties that are up to code and provide adequate loan security. When rehabilitation is involved, this means that a lender usually requires the improvements to be finished before a long-term mortgage is made.

Conversely, a renovation loan offers homebuyers a way to purchase a house in need of repair or modernization, finance the reconstruction of the home, and obtain a permanent mortgage when the work is completed to pay off the interim loans with a permanent mortgage. This program allows the borrower to get one mortgage loan, at a long-term fixed (or adjustable) rate, to finance both the acquisition and the rehabilitation of the property.

If so, the Department of Housing and Urban Development (HUD) has a program that would allow you to get these home improvements done. The Section 203(k) program is HUD’s primary program for the rehabilitation and repair of single-family properties. This program is sometimes referred to as a “renovation loan.”

According to HUD’s website, the mortgage amount is based on the projected value of the property with the work completed, taking into account the cost of the work. To minimize the risk to the mortgage lender, the mortgage loan (the maximum allowable amount) is eligible for endorsement by HUD as soon as the mortgage proceeds are disbursed and a rehabilitation escrow account is established. At this point the lender has a fully-insured mortgage loan.

Although luxury items and improvements are not eligible as a cost rehabilitation, funds can be used for items as painting, room additions, decks and other items even if the home does not need any other improvements. All health, safety and energy conservation items must be addressed prior to completing general home improvements.

What are the requirements?

To be eligible, the property must meet the following criteria:

  • Property must be a one- to four-family dwelling that has been completed for at least one year.
  • The number of units on the site must be acceptable according to the provisions of local zoning requirements; cooperative units are not eligible.
  • Homes that have been demolished, or will be razed as part of the rehabilitation work, are eligible provided some of the existing foundation system remains in place.

Fannie Mae’s HomePath Renovation Mortgage

There is a similar type of loan program available through Fannie Mae, which is a government-sponsored enterprise. This program, called the HomePath Renovation Mortgage allows a borrower to purchase a property that requires light to moderate renovation. The one loan amount includes both the funds for the purchase and renovation – up to 35% of the as completed value, no more than $35,000.

This mortgage is for purchases only and the home must be a Fannie Mae-owned property. To find out if the property you are interested in is a Fannie Mae property, check out their loan look-up tool.

If you are interested in financing a property that meets the above requirements, please contact a Ocean’s Lending representative today. We will be able to discuss different ways the program can be used, including financing for condominium units and converting one-family dwelling to a two-, three-, or four-family dwelling. One of our mortgage professionals will also be able to walk you through the application processes.