Lending Options

Finance Options & Loan Limits – 2018

 

Conventional

 

Conventional financing is the most common with residential real estate financing.  The loans are underwritten based on guidelines provided by FNMA (Federal National Mortgage Association/aka Fannie Mae) and FHLMC (Federal Home Loan Mortgage Corporation/aka Freddie Mac).  Fannie Mae and Freddie Mac dictate the loan limits in areas across the U.S.

 

$453,100 is the current Conforming Max in our area (best rates on the market)

 

$667,000 is the High Balance Conforming Max (a little higher than Conforming but much better than jumbo)

 

Above $667,000 is Jumbo (higher rates and tighter underwriting guidelines)

 

In general, 5% down is the minimum with Conventional financing.  There are cases where 3% down may be allowed. Mortgage insurance is required with less than 20% down although we have several lenders who will do what is called “Lender Paid” mortgage insurance.  The rate will be slightly higher, but in many cases this may be less expensive than payment with standard mortgage insurance.

 

FHA – Federal Housing Administration

 

Government Insured loans allowing low down payment, lower credit scores, less strict underwriting in most cases. Attractive rates.  Monthly mortgage insurance plus an Up-Front Mortgage Insurance Premium that can be financed.

 

3.5% is minimum down

 

$453,100 and $667,000 max loan limit tiers in our area (no jumbo)

 

Generally best for those with low down and lower credit scores, perhaps higher debt, etc.  Dual layer of mortgage insurance is the downside. Rates are lower than with Conventional financing.

 

VA- Veterans Affairs

 

Government guaranteed loans for Veterans of the U.S.  Best rates of all, zero down payment, easier qualifying with low scores and higher debt.  There is a VA Funding Fee – percentage is based on the veteran’s status at the time of the loan. The Funding Fee can be financed on top of the loan amount/purchase price.  This keeps closing costs down.

 

$453,100 and $667,000 are the general max loan limit tiers in our area with zero down.  With Purchase Prices higher than $667,000, the VA will allow a higher loan amount as long as the Veteran can put down 25% of the difference between $667,000 and the Purchase Price.

 

If VA Eligibility is in place, this is usually THE best loan option available.

 

 

USDA

 

A USDA rural development home loan is a Guaranteed home loan funded by an approved USDA lender under a specialized loan program administered by the United States Department of Agriculture. The program’s full name is the USDA Rural Development Guaranteed Housing Loan program.  The best feature of a USDA loan is its 100 percent financing option.  This programs Guarantee comes from the United States Government and protects the lender in the event of a buyer default. Because of their guarantee, lenders who offer these loans are willing to forgive the down-payment needed for a mortgage. The qualifying requirements for a USDA Home Loan are similar to an FHA loan and much easier and forgiving than conventional loan programs.

 

With a USDA loan, in addition to the borrower, the property must also meet certain requirements.  The borrower must fully document their ability to pay while not exceeding 115 percent of the median income for the area.  In addition to the borrower qualifications, the property must be located in an area that is designated as rural by the USDA.  The rural designation is identified by zip code.  

 

As the name implies, a USDA loan is administered by the United States Department of Agriculture.  However, you don’t have to own a cow to take advantage of this great opportunity.  While the intent of the program is for the benefit of rural areas, many buyers are surprised to find out just how many close-in suburban neighborhoods qualify.

 

A USDA loan is ideal for buyers who are looking to purchase on the outskirts of major cities and towns with zero down payment.  Please let me know if you are interested and want to view the maps for these rural designated areas.

 

 

Portfolio Lending

 

Portfolio lenders do not sell the servicing of their loans, therefore they can be more flexible with their Underwriting Guidelines.  Most follow the general rules and guidelines of FNMA and FHLMC.  But they can make their own rules and do not have as many strict overlays of the standard Conventional guidelines.

 

Given these lenders do not sell the servicing, the rates/fees are generally a little higher than standard loans. But this may be the only option if standard mortgage qualifying will not work.

 

 

Sub-Prime/Non-Prime/Non-QM/Alt Lending

 

These are Alternative options to the standard lending institutions.  They offer the loosest qualifying guidelines.  Rates and pricing will be higher and sometimes much higher.  These are for lower credit scores and or harder to qualify borrowers.  Down payments generally need to be higher.

 

This is a last resort if no other option is possible AND the borrower does not prefer to wait until their overall situation improves.  Many times there are ways that a borrower can improve their credit or qualifying picture in just a few months’ time to a point where they can qualify in the Conforming or Portfolio lending categories.