100% Financing

Editors Note: Due to the mortgage and credit crunch, 100% financing has been eliminated. If you’re in need of a Denver Financing contact us to discuss your mortgage options.

100% Financing allows you to buy a home with no money down.

100% home loans are widely available nowadays. Not only do government loan programs such as FHA and VA offer Zero Down mortgages, conventional loan programs with No Money Down feature are also offered by many traditional mortgage banks.

100% financing can be a great loan even for those who do have access to a down payment. Down payment funds can many times can be better kept aside for things such as other investment opportunities, a reserve account for emergencies and future home improvements.

Many people wait to receive income tax money, a big bonus at the end of the year, or a large gift from an immediate family member before they begin looking to buy a new home. A 100% zero down loan eliminates this waiting period and allows you to obtain the home you want now. Especially now with the uncertainty of interest rates and where they will be in the next 6-12 months. Now is the time to begin looking for your dream home. Waiting may cause you to accept a higher interest rate because the rates have increased during the time you waited. Even if you do have money available for a down payment it is always a good idea to keep some money put away for a rainy day or for an old furnace that needs to be fixed, an old water heater that needs to be replaced or some other basic home repairs. Also, you may want to have some money left to help pay for some of the costs associated with buying a new home, such as buying window treatments, decorating, new furniture, etc…

Almost all lenders allow this now and it can even be done with poor credit. Down to a 560 currently, although the interest rate will be reflective of your credit score!

By using 100% home financing option to control your up-front expenses by reducing your down payment to as little as zero without having to pay mortgage insurance. Most commonly know as 80/20 combo mortgages.

Besides being commonly known as 80/20 combo mortgages. 100% Financing can also be called NO MONEY DOWN or ZERO DOWN.

With 100% or Zero Down home loans, a home buyer is able to minimize his or her out of pocket expenses allowing them to purchase their dream home much sooner. In addition this allows more cash for the family to use for other home necessities.

You can now get 100% financing for the full purchase price of a home a single loan. In recent years, loan products have been developed to provide home buyers with the opportunity to purchase a home without a down payment. For many years, the minimum down payment required was 5% of the purchase price for a home. Then, special first-time home buyer programs came into existence, which usually required a 3% down payment. Now you can buy a home without a down payment.

100% Financing programs are off erred by lenders in markets where property values are stable or increasing. In markets that show decreasing property values, lender are much less likely to offer 100% Financing programs.

Often you can still do 100% Even with poor credit with a seller carry back. The lender will finance 80% and the seller will finance the remaining 20% Some lenders will allow this even with a credit score as low as 540!

Writing closing costs into the Purchase and Sale contract is called adding “seller concessions“. Many lenders will allow up to 6% of the sale price of the home to be paid in seller concessions.

If you are considering purchasing a property with no money down, please contact your local mortgage agent before you write your offer.

One effective way to get a win-win is to help someone with no down payment money on a For Sale By Owner home. The seller is more likely to agree to seller concessions when they know they are saving the realtor commission. If you find a 100% loan for the buyer and the seller will agree to 6% seller concessions, the broker can get a fair commission for playing real estate agent and directing the parties to a good title company or attorney to help with contracts and closing. This is often considerably cheaper than FHA because FHA has the mandatory up front PMI of 1.5% although the interest rate may be a little higher than the FHA rate. You might also ask your mortgage broker about companies that offer to have the PMI added to the interest rate where it is tax deductible, or have them do an 80/20 loan to avoid MI altogether.

100% financing does not include your closing costs. Your Real Estate Agent may write the closing costs into the contract for the seller to pay so that you may not be required to use any of your funds to purchase your home.

If your credit score is below 700, another excellent way to avoid PMI Private Mortgage Insurance on a 100% purchase is to contact us and enquire about a subprime 100% purchase mortgage loan.

You will still have to put down earnest money on the home you plan to purchase. If you obtain 100% financing, the earnest money will be used toward your closing costs.

Borrowers with strong credit scores will have more 100% financing programs to choose from with better rates than a borrower with a lower score.

Although more difficult to qualify for, there are No Money Down programs for investment properties as well. The property has to be residential, up to 4 units. As an investor pay close attention to your cash flow on any property as 100% financing often pushes expenses beyond income.

Many people today are opting for 100% financing, or zero down programs. This puts you at an advantage if you already have cash on hand. While it would seem logical to put money down towards your purchase, you may want to consider your situation after the loan closes. Will you have enough cash left over?

Alt -A Loans

Alt-A loans (Alternative-documentation loans), have been around awhile. In recent years, however, their meaning has become somewhat blurred. Alt-A loans are primarily credit-score driven, since the candidates for these loans tend to lack proof of income from traditional employment. The Alt-A loan reduces the gathering of documentation associated with fully documented loans, such as providing income verification and documentation of assets. On the other hand, borrowers do pay a slightly higher interest rate, often from a quarter, up to half-point more than fully documented loans.

Alt-A mortgage loans are usually much more flexible that traditional loans. Commissioned employees are usually good candidates for Alt-A loans due to the inconsistency in their income each month. Alt A might even be considered as a short-term solution, entered into with the understanding that the borrower will refinance later. employees are usually prime candidates for Alt-A loans due to the instability of their income. For Banks and borrowers alike, Alt A programs are appealing because they are easier to document and have fewer restrictions than conventional loans.

Investors and Self Employed borrowers are often the likely candidates for this type of mortgage financing.

Other sites: Broker Outpost | MIP | What not to do after you apply for a Mortgage| Pay Option Arm Calculator

Appraisal

A document that gives an estimate of a properties fair market value; an appraisal is generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property.

You probably have an opinion of the value of your home. Your opinion and a professional appraiser’s opinion may be the same. But appraisers are required to be objective and impartial in their analyses and opinions. A professional appraiser has been trained in appraisal methodology and looks at how your home compares with sales and listings of homes similar to yours, considers many factors such as price trends and proximity to a freeway, complies with professional standards, and usually completes a written report.

It is important to note the appraisal process and inspection for FHA and VA loans in particular may be significantly more rigorous than a conventional mortgage.

An appraisal when completed is good to keep on hand even after the intended transaction is complete. For example, after getting an appraisal for a refinance transaction, this same appraisal may come in handy to give you a point of reference should you wish to sell the property at a future date.

A fee is paid to an appraiser, who is qualified by education, training, and experience to estimate the value of real and personal property. Appraisers usually charge one fee for a single-family home and slightly higher fees for a two-family, three-family, or four-family home.

Appraisals are much more likely to come in under the expected value in a re-finance transaction than in a purchase transaction. Simply because homeowners often unrealistically over estimate the value of their homes.

Even though the borrower pays for the cost of the appraisal report, it is in the name of the lender bank or mortgage broker. By law, borrowers have the right to receive a copy of the Appraisal Report. In fact, lending institutions are required to disclose to the borrowers that they have this right.

The fair market value that is determined by the appraisal is not just what an evaluation of what your house is worth, but what a potential buyer in that market would be willing to pay for the property.

Although appraisals rarely come in under the purchase price, it happens. What are the implications of a low appraised value? For one, the buyer overpaid, at least in the eyes of the appraiser. An appraisal is nothing more than just the appraiser’s professional opinion on the “fair market value” of the subject home. The “fair market value” of a home is subjective. What it’s worth to one buyer is often not worth as much to another (otherwise the first buyer would have been overbid). In a purchase transaction, the buyer often uses the low appraisal value as leverage to negotiate a lower purchase price. Unless being in an overheated real estate market where the seller is certain he will find another buyer, the seller would often agree to a lower price for fear of not finding another buyer in a short time, and the recurrence of a lower appraisal value with any subsequent buyers. Another possibility the appraised value may come under the purchase price is that the appraiser may not be familiar with the neighborhood. This happens most often when the bulk of the appraiser’s work is not in the same vicinity of the subject home, or that the subject property is located in a rural area when there are no usable comparable sales. If a home buyer believes this is the case, he should request a copy of the appraisal report from the lender, check the comparable properties chosen and determine whether they are valid comparable.

There are several kinds of appraisals including an Automated Valuation Model, a Full Interior and Exterior Appraisal, and a Limited Exterior Appraisal. Some loans such as home equity loans under $100,000 don’t require a full appraisal, while home loans over $2 million will require two full appraisals.

Costs for appraisals can vary depending on which company is used. Sometimes the cost can be inclusive in the loan fees and other times it will need to be paid when the appraiser comes out to the home. In any event, the appraisal evaluation is one of the key components in what loan amount each individual borrower will qualify for.

The appraisal in not to be confused with the home inspection. While an appraisal is completed for the value of the home alone, the inspection is performed to uncover potential problems that may be present in the home. It’s very important to have both done on the property.

ARM Adjustable Rate Mortgage

Adjustable Rate Mortgage; a mortgage loan subject to changes in interest rates; when rates change, ARM monthly payments increase or decrease at intervals determined by the lender; the Change in monthly -payment amount, however, is usually subject to a Cap.

If you are currently in the tail end of the fixed period in your Adjustable rate loan, often 2 years, 3 years or 5 years after you took it out, this may be the best time to get a fixed rate mortgage refinance and lock in your rate while it is low. While mortgage rates rise and fall, the current market outlook is that they will continue to increase over the next couple of years, and you don’t want to be stuck paying a lot more money for a couple of years when you have the opportunity to refinance ARM into fixed rate mortgage today.

There are many Adjustable Rate Mortgage products available today. Some ARM products have rates that adjust immediately the following month after settlement, others have an initial fixed rate period of 1, 3, 5, 7, or 10 year. ARM that has an initial fixed interest rate period is also known as Hybrid Loans.

When choosing an ARM product, it is as important to consider the underlying indices and margins as picking the lowest teaser rates. Different indices have different sensitivity to the interest market. In other words, some indices such as Treasury bills and LIBOR are highly sensitive to market conditions and adjust rapidly. The 11th District Cost of Funds Index, also known as COFI, tends to move slower in comparison and therefore less volatile.

ARM products almost always have an initial interest rate that is lower than that of fixed rate products of the same loan term. These lower starting rates, also refereed to as Teaser Rates, are meant to induce/reward borrowers who are willing to bear some of the risks of future interest rate movements.

ARM’s are great for keeping your payment down for a fixed period of time while you work on your FICO score and aim for a better fixed rate down the road.

Some ARM loans have an interest only option. These loans are very popular with people who do not plan on staying in the home for a long period, want to qualify for a larger home and investment properties to increase cash flow due to the lower payments.

Other ARM product features that need to be considered include the Period Adjustment Caps which limits the maximum rate change allowed at an given adjustment, the Floor, which is the lowest possible rate of the loan, regardless of the value of the underlying index, and the Life Time Cap, which sets a ceiling for the maximum rate of interest throughout the life of the loan.

An ARM, short for “adjustable rate mortgage”, is a mortgage on which the interest rate is not fixed for the entire life of the loan. The rate is fixed for a period at the beginning, called the “initial rate period”, but after that it may change based on movements in an interest rate index. The ARM rate quoted by a lender or broker is the initial rate. It holds until the end of the fixed-rate period, which can last from a month to 10 years. This rate is critically important if the initial rate period lasts for 10 years, but it is very unimportant if the period is only one month. On the most popular ARM program, the initial rate period is 12 months, and on more than half the period is 36 months or less. While you can always opt for an ARM with a longer initial rate period, the rate goes up as the period lengthens. If you need the rate on a one-year ARM to qualify, you must consider very carefully what happens after the fixed-rate period ends.

An adjustable-rate mortgage (ARM) with an initial fixed-rate period of pre-determined years, during which the borrower is may have an option to pay only the interest accrued on the loan. The interest rate then adjusts annually or bi-annually, based on the indexes such London Inter-Bank Offered Rate (LIBOR) index, and can move up or down as market conditions change.

ARMS have caps so the borrower is protected by a maximum adjustment the lender can make over the term of the loan. This information should be clearly identified in the Truth in Lending statement (TIL) which should be given with the Good Faith Estimate (GFE).

ARM loans come with different initial fixed rate periods such as 1 2 3 or 5 year fixed. After the initial period they will start to adjust according to the index they are tied to. What’s nice about ARM loans is it allows the borrower to have a lower payment initially. These type programs can be used for many reasons, one of them being for someone who won’t be living in a property for an extended period of time.

Is the ARM right for you? I can understand how the ARM can be confusing and I want to thank you for reading the information above. If you would like to continue this conversation than please contact me so you and I can discuss your financial situation. Please read more valuable information and when you feel comfortable I would like you to contact me.

The initial interest rate for an ARM is lower than that of a fixed rate mortgage, where the interest rate remains the same during the life of the loan. A lower rate means lower payments, which might help you qualify for a larger loan. There’s couple of questions that is very important when considering the ARM like; How long do you plan to own the house? The possibility of rate increases isn’t as much of a factor if you plan to sell the home within a few years. Do you expect your income to increase? If so, the extra funds might cover the higher payments that result from rate increases. Some ARMs can be converted to a fixed-rate mortgage. However, conversion fees could be high enough to take away all of the savings you saw with the initial lower rate.

An adjustable rate mortgage, called an ARM for short, is a mortgage with an interest rate that is linked to an economic index. The interest rate, and your payments, are periodically adjusted up or down as the index changes.

If you are considering an adjustable rate mortgage, make sure you do the research. Find out how often the rates can increase and by how much. Try to determine whether you can afford payments if the rates go up significantly over the next few years.

“American consumers might benefit if lenders provided greater mortgage-product alternatives to the traditional fixed-rate mortgage,…To the degree that households are driven by fears of payment shocks, but are willing to manage their own interest-rate risks, the traditional fixed-rate mortgage may be an expensive method of financing a home.”- Alan Greenspan, the Chairman of the Federal Reserve Board at the Credit Union National Association 2004 Governmental Affairs Conference

Most lenders tie ARM interest rate changes to changes in an “index rate.” These indexes usually go up and down with the general movement of interest rates. If the index rate moves up, so does your mortgage rate in most circumstances, and you will probably have to make higher monthly payments. On the other hand, if the index rate goes down your monthly payment may go down. Lenders base ARM rates on a variety of indexes. Among the most common are the rates on one-, three-, or five-year Treasury securities. Another common index is the national or regional average cost of funds to savings and loan associations. A few lenders use their own cost of funds, over which–unlike other indexes–they have some control. You should ask what index will be used and how often it changes. Also ask how it has behaved in the past and where it is published.

Adjustable rate mortgages or ARMs have Interest Rate Caps. Rate caps limit how much interest you can be charged over a period or over the life of a loan. – A Periodic rate cap limits the amount by which your interest rate may increase at the adjustment period(s). Only some ARMs have these period caps.- Overall or lifetime rate caps limit how much rate can change over the life of the loan. Lifetime or overall caps are required by law and have been required by law since 1987 on all Adjustable rate mortgages.

ADJUSTABLE-RATE MORTGAGE (ARM)A mortgage loan where the interest rate is not fixed for the entire term of the loan, and can change during the life of the loan in line with movements of an index rate.

If your ARM has started to adjust, it might be a good idea to refinance into a fixed rate loan.

2/28 ARM is a great product. Especially for 1st time home buyer or subprime borrower. Allows them to strengthen credit over the two year period.

An Adjustable Rate Mortgage (ARM), will carry a lower initial interest rate than a typical 30 year fixed rate mortgage. The lender is hoping that you will forget about the adjustment, and just continue to hold on to the loan. Be aware of when your loan is due to adjust, as well as by how much it will adjust.

If one or more of these situations describes you, an ARM might be a good fit: -You plan to stay in your home for a relatively short period of time -You want lower initial monthly payments and can handle potential payment increases in the future -You want to qualify for a larger mortgage amount, and you expect your income to go up over time

It has been shown, that home owners would have saved thousands of dollars if they had a ARM of a conventional 30 year fixed.

When should you take an ARM mortgage vs. a traditional 30 year fixed? Consider how long you plan on occupying the property. If it is for 10 years or more then a 30 year fixed may be the best bet when interest rates are low. However, if you plan on moving sooner then consider the extra savings you will achieve by choosing an ARM. For example, you plan moving when your child is old enough to go to school in three years. The best financial choice would to get a 3 year or possibly a 5 year ARM. When a 30 year fixed mortgage is around 5.875% a 5 year ARM is around 5.25% and a 3 year ARM would be about 5.00%. On a $200,000 loan the monthly payments would be $1183 for a 30 year, $1104 for a 5 year ARM, and $1073 for a 3 year ARM. Times that by 3 years, 36 months, and your savings for an ARM vs. a 30 year fixed would be between $2800 – $3900. Money better spent elsewhere.

If you only plan on living in your home for a few more years, it might not be worth it to move from a program like a low rate ARM or an Interest Only Program to a traditional Fixed Rate loan. There may be better things to put your money towards each month that putting a few extra dollars towards the principal of your home.

Debt to income ratios

Editors Note: Due to the mortgage and credit crunch, debt to income ratios have been lowered making it more difficult to qualify for a loan. If you’re in need of a mortgage in Denver, CO contact us to discuss your mortgage options.

The ratio is expressed as a percentage which results when a borrowers payment obligations on long term debts is divided by the borrowers effective income. This is calculated on a net income for FHA, VA mortgages and on a gross income basis for conventional mortgages. (also referred to as housing expenses to income ratios).

It is important to note that many lenders look at what is referred to as front and back end ratios. The front-end ratio is the housing payment vs. gross income and the back-end ratio is the total monthly (excluding utilities, food, or other non-recurring/variable expenses) vs. gross income. Some lenders will go as high as 55% on the back-end ratio depending upon certain factors such as the borrower’s credit score ampersand loan amount.

Front ratio is calculated by dividing your gross monthly income by your housing expenses – those include principal, interest, real estate taxes, homeowners insurance, mortgage insurance (PMI) and association fees – the latter two you may or may not have and if you have condominium association, insurance is often included in association fee. When calculating back ratio your monthly consumer debt payments are also included like payments for your cars, credit cards, installment loans including student ones, second mortgage, etc.

Lower debt to income ratios allow you to get the best rates and quicker loan approvals.

Borrowers having trouble qualifying for loans on the basis of their debt to income ratio should speak with a loan officer about paying off certain high monthly payment consumer debts or exploring stated income alternatives to their selected loan program.

Conforming loans will require lower debt to income than your subprime loans. Once your mortgage professional knows what your income is and has as chance to pull your credit he or she will be able to determine what category of loans you will qualify for. This is done is the first stage of the loan process called the pre-qualification.

Your debt to income ratio is a simple way of showing what percentage of your income is available for a mortgage payment after all other continuing obligations are met. The ratio is one of the many things a lender considers before approving your home loan.

As one of the underwriting criteria, Debt-to-Income ratio carries much weight in the loan approval process. For homeowners with occupations that are difficult to document income, many lenders offer loan programs in which DTI ratios are not considered in the underwriting process.

Debt ratios tell the lender whether or not you will be able to afford the proposed payment. The lender looks at the total gross income before taxes and other deductions and uses this number in the factor to determine the income you qualify with.

The lower your income to debt, the more secure the lender feels.

Your debt to income ratio (DTI) is a key indicator of your true financial picture. Your debt to income ratio is calculated by dividing monthly minimum debt payments (excluding mortgage or rent, utilities, food, entertainment) by monthly gross income. For example, personal gross monthly income of $3,000 who is making minimum payments of $1000 on debt (loans and credit cards) has a debt to income ratio of 33 percent ($1000 / $3000 = .33). Contact A Mortgage Professional to help you determine your DTI.

Debt-to-income ratio

A comparison of gross income to housing and non-housing expenses; With the FHA, the-monthly mortgage payment should be no more than 29% of monthly gross income (before taxes) and the mortgage payment combined with non-housing debts should not exceed 41% of income.

As far as underwriters are concerned, the Back DTI (total monthly obligations divided by total monthly income) carries more weight than the Front DTI (monthly housing expenses divided by total monthly income). In fact, some lender banks have disregarded the Front Debt-to-Income ratio altogether and look only at the Back DTI.

On conforming mortgages your loan officer can use electronic underwriting which may allow you to have higher debt ratios. Loans that have 50, 60, or 70% debt ratios have gone electronically because of loan to values, a great credit history, or a lot of assets.

Even though you may not meet the DTI requirement, some lenders will expand that limit for a small increase in rate.

Even if you do not meet the DTI requirements, there are variations that will allow you to get the needed financing. A No Ratio loan, allows you to get financing, with a small rise in the rate.

Although many lenders have programs that allow up to a 55% debt to income ratios, it is not always in the best route to take. The borrower should consider what his or her potential for an increase or decrease in income could be over several years. Discussing your short and long term goals with your mortgage broker will allow them to find a loan program that is in your best interest.

Debt to Income Ratio Your debt to income ratio is simply a way of determining how much money is available for your monthly mortgage payment after all your other recurring debt obligations are met. Debt limit There is generally a debt limit associated with each type of loan, such as a 28/36 qualifying ratio for a conventional loan. These qualifying ratios are guidelines. An excellent credit history can help you qualify for a mortgage loan even if your debt load is over and above the limit. Understanding the qualifying ratio Typically conventional loans have a qualifying ratio of 28/36. Usually an FHA loan will allow for a higher debt load, reflected in a higher (29/41) qualifying ratio. The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can be applied to housing (including loan principal and interest, private mortgage insurance, hazard insurance, property taxes and homeowner’s association dues).The second number is the maximum percentage of your gross monthly income that can be applied to housing expenses and recurring debt. Recurring debt includes things like car loans, child support and monthly credit card payments. For example: With a 28/36 qualifying ratio: Gross monthly income of $3,500 x .28 = $980 can be applied to housing Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses With a 29/41 qualifying ratio: Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses Simply guidelines Remember these are just guidelines. We’d be happy to pre-qualify you to determine how large a mortgage loan you can afford. We look forward to helping you buy your dream home.

This ratio, also known as “DTI”, is very important in the eyes of each Lender. Some lenders will allow your DTI to be as high as 55% making it even easier to qualify for a mortgage.

Other lenders will want to see your DTI at 40% or below and usually conforming loans will have this stipulation. Many niche programs do allow for higher DTI ratios. If you are currently looking for a loan you might want to consider consulting a mortgage broker to find out what percentage your DTI is and what programs are available.

Fannie Mae

Federal National Mortgage Association (FNMA); a federally-chartered enterprise owned by private stockholders that purchases residential mortgages and converts them into securities for sale to investors; by purchasing mortgages, Fannie Mae supplies funds that lenders may loan to potential homebuyers.

Generally speaking, mortgage loans products than are sold to Fannie Mae will have the most attractive interest rates on the market. Also, the conforming loans (Fannie Mae products) do not normally have pre payment penalties.

Fannie Mae is apart of what are known as Government Sponsored Entities (GSE’s). Though government sponsored, are not government owned, just as the Federal Reserve is a privately owned but government sponsored corporation. Fannie Mae is responsible for over half of the conforming loan purchasing and investing in the nation and is largest real estate asset holding company in the nation. While Fannie Mae is an integral part of real estate loans in the nation, they still have their limitations of what they feel comfortable investing on for Wall Street. Because GSE’s like Fannie Mae are so influential to real estate financing, loans they will not buy are called non-conforming, or subprime mortgages.

All loans that are sold to Fannie Mae are underwritten according to Fannie Mae’s rules and guidelines. More information about Fannie Mae and their underwriting guidelines can be found on their website, simply type Fannie Mae into any search engine to find their site.

To sum it all up; Fannie Mae buys the mortgages on the secondary market, sells those mortgages in the form of securities to investors, which allows lenders to continue loaning money over and over again.

Since Fannie Mae is one of the two (the other being Federal Home Loan Mortgage Corporation, or FHLMC, also referred to as Freddie Mac) largest purchasers of mortgage loans in the secondary mortgage market, it’s underwriting and product guidelines are widely accepted in the mortgage loan industry. Even in the world of non-conforming loans (loans that are not eligible to be sold to FNMA/FHLMC, usually due to the loan amount being larger than that allowed by FNMA/FHLMC), its underwriting criteria are still closely followed.

Mortgage loans that are eligible to be sold to FNMA are called conforming loans. Because lender banks can resell these loans to FNMA and recoup their investments immediately after closing, rather than having to wait 30 years to recover their investments, lenders are able to offer lower interest rates for conforming loan products. In addition, since every financial institution, regardless of its financial strength, can sell conforming loans to FNMA and immediately recoup its investments, smaller lenders with limited capital are able to compete with large international banks in offering loans in the primary market, thereby giving conforming loan borrowers even more competitive rates. Non-conforming loan products carry higher interest rates because banks cannot sell these loans to Fannie Mae and must sell to smaller investors or keep in their own investment portfolios for the length of the loan terms. Therefore, Fannie Mae plays an important role in every mortgagor’s loan transaction.

Because Fannie Mae was formed with the sole purpose of promoting homeownership in the United States by creating a healthy supply of mortgage funds, all of its underwriting guidelines are designed to benefit the average homeowners, and to keep the wealthy and the commercial sector from taking advantage of its functions. Amongst its many criteria, FNMA stipulates that the property must be for residential use. It also dictates the maximum loan amounts allowed. Other criteria that has to be met include percent of down payment in relation to purchase price, borrower’s capability to repay loan, cash reserves, the type of eligible properties, borrower’s credit worthiness, and other aspects of the loan file.

Started by Congress to help keep the secondary mortgage market going. As a tax-paying corporation, it insures mortgage money is available. They also buy and/or sell conventional residential mortgages, in addition to VA-guaranteed and FHA-insured mortgages.

Fannie Mae is also credited with developing two automated underwriting engines that revolutionized the underwriting process of conforming loans. Desktop Underwriter (DU) and Desktop Originator (DO) computerized the loan risk assessment process and are used by every conforming lender in the primary market.

Other sites: Mortgage Broker | Delinquency | Negative Amortization | MIP | VA | Fixed-rate mortgage | Mortgage banker| Pay Option Arm Calculator

FHA

Federal Housing Administration; established in 1934 to advance homeownership opportunities for all Americans; assists homebuyers by providing mortgage insurance to lenders to cover most losses that may occur when a borrower defaults; this encourages lenders to make loans to borrowers who might not qualify for conventional mortgages.

For an FHA loan, your monthly housing costs should not exceed 29% of your gross monthly income. Total housing costs include mortgage principal and interest, property taxes, and insurance. Those four terms are often lumped together, and referred to as PITI.

FHA loans also have no prepayment penalty. Qualifying guidelines assist the average buyer in each particular marketplace. Some underwriting guidelines are less restrictive than those of conventional fixed-rate loans, and can vary based on the marketplace. The lender is insured against loss for the life of the FHA loan. It is possible to place subsequent mortgages after an FHA first mortgage.

The seller or other third party is allowed to pay part of, or all of the closing costs associated with the loan. FHA loans are assumable, but the assuming party must qualify. Any FHA loan originated prior to December 1, 1986, are simply assumable. Meaning the purchaser does not need to formally qualify for the loan. Loans are assumed at the note rate under which they were originally originated. The exception being on ARMs, in which case are assumed at the loan’s current interest rate.

Now looking at the down side of the FHA loan. This type of loan can cost the seller more money in the form of non-allowable. Non-allowable are fees FHA will not allow the borrower to pay such as a processing fee etc… This may not be a deal killer by any means but it is something to take into consideration when writing the offer on the home you intend to purchase.

A FHA mortgage is when the government guarantees Federal Housing Authority loans. You can put down a smaller down payment on a FHA loan, but you will also be required to pay mortgage insurance.

What are the advantages to using FHA financing? There is a low down payment requirement. The down payment is 3 percent, up to the maximum loan amount allowable in your particular region. The entire down payment can be gifted or borrowed from a relative (on most other loans the down payment must be sourced and seasoned).Unlike conventional loans, there are no reserve requirements of two months’ PITI payments at closing. The interest rates are typically lower on FHA loans, than what they are on conventional fixed-rate loans.

FHA loans have lower maximum loan limits compared to that of conventional mortgages. The maximum loan limits vary county by county and are adjusted every year to reflect increasing home prices. FHA loans are not for every one in that the loan limits are too low for higher price properties and that the application process takes longer than conventional mortgages, so in a hot real estate market where houses receive multiple offers, buyers using government loan often lose out to those using convention mortgages.

For an FHA loan, your monthly housing costs should not exceed 29% of your gross monthly income. Total housing costs include mortgage principal and interest, property taxes, and insurance. Those four terms are often lumped together, and referred to as PITI.

Your total monthly costs, adding PITI and long term debt, should be no more than 41% of your gross monthly income. Long term debt includes such things as car loans and credit card balances.

Your FHA loan will also carry Private Mortgage Insurance (PMI). The PMI payment is lower than what it would be if you had a similar conventional loan scenario. Unlike conventional loans, the PMI will remain with the FHA loan for the life of the loan.

Federal Housing Administration Loan. This loan is issued by the Insuring Office of the Department of Housing and Urban Development.

Guide To Low Down Payment Mortgage Programs

Editors Note: Due to the mortgage and credit crunch, Low Down Payment Mortgage Programs may no longer be available. If you’re in need of a Denver Colorado Mortgage contact us to discuss your mortgage options.

Here’s no question about it: Buying a first home is a big financial commitment. In most cases, a home is the largest single purchase an individual or family will make in a lifetime. However, because of the tax advantages afforded to homeowners, buying a home also can be one of the best financial decisions you’ll ever make. Problem is, many would-be homeowners remain renters simply because they mistakenly believe mortgage lenders require that buyers come up with 20 percent of the purchase price as a down payment. While it’s true lenders feel it’s less risky to work with buyers who are able to bring a substantial down payment to the table, the standard 20 percent requirement is fast becoming a relic of the past. In recent years, lenders have become more flexible in working with first-time homebuyers by creating a variety of special programs that require only a small down payment. These programs, combined with the most favorable interest rates in two decades, have encouraged growing numbers of renters to consider the tremendous benefits of home ownership.

Private Mortgage Insurance: Most major lenders offer privately insured mortgages, which generally require a 10 percent down payment (although some lenders offer loans with a 5 percent down payment to buyers with exceptional credit). These loans typically are not limited by maximum loan amount or purchase price limitation.

While the list of programs offered by individual lenders is too extensive to mention in detail, here are some common programs you are likely to come across as you work with your real estate agent to purchase your first home: Federal Housing Administration (FHA): FHS mortgages allow homebuyers to purchase a home with as little as a 5 percent down payment, and to finance all non-recurring closing costs. The current maximum loan amount in most urban markets is $151,725. In addition, borrowers are allowed to use up to 41 percent of their gross income toward paying mortgage debt – well above the ratio allowed under most private programs.

Mortgage Revenue Bonds and Mortgage Credit Certificates: Mortgages funded with these instruments typically require a minimum of 5 percent down and have interest rates that are 1.5 to 2 percentage points below conventional 30-year fixed rates. These types of loans, offered by state and local housing agencies, are available only to first-time homebuyers. There generally are income and purchase price caps that vary, depending on where you plan to buy.

Department of Veterans Affairs (VA): VA mortgages allow veteran or active service personnel purchase home with no down payment, up to the current maximum price of $184.000. However, there is no purchase price limitation for buyers able to make a down payment. Like the FHA program, VA borrowers can put up to 41 percent of gross income toward their mortgage debt.

Clearly, there are a lot of options for first-time homebuyers. While lenders will be more than happy to share information about their own programs, you can save yourself a good deal of time by first selecting a professional loan officer who is experienced in working with first-time buyers in the areas where you plan to buy. An agent who focuses on first-time buyers will know from experience which lenders in your area offer a low down payment program that will meet your unique needs. Today, taking the first step toward owning your own home is easier than before. Your real estate agent is your best resource for finding innovative ways to help you come up with a down payment and qualify for financing. There’s certainly no need to wait until you’ve saved a 20 percent down payment!

Piggyback mortgage strategies incorporating up to 80% first mortgage and up to an additional 45% in the form of a second mortgage or equity line of credit can allow borrowers with all types of credit to own a home with no money down.

In the case of many of today’s lenders, there may not be any down payment required. Lenders are constantly looking at making more and more programs available to people looking to purchase a new home. Lenders are willing to do 100% loans, with a credit score of 560 or better. This may not be the best option, that is why it is best to know that there are several low down payment programs, that may also be available to you.

In addition there are down payment assistance programs that can help with thousands of dollars for down payment and closing cost. Most cities have grant programs available that don’t have to be paid back.

Community Homebuyer Program: Through their networks of mortgage lenders, the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) offer Community Homebuyer Program loans. These programs require a 5 percent down payment, 3 percent of which may be a gift. To further help buyers qualify, applicants may use 38 percent of their gross income. Currently, the maximum loan amount available through these programs is $203,150.

Home Possible Program

This program helps the borrower capitalize on opportunities to meet their home financing needs. Borrowers looking for low down payments and flexible sources of funds, including first time homebuyers, move up borrowers, retirees, families in underserved areas, new immigrants and others. You’ll also offer greater flexibilities to those who serve our communities so well – like teachers, firefighters, healthcare workers and law enforcement officers.

These programs usually have a reduced Private Mortgage Insurance (PMI) requirement. That means a lower total payment for you.

Home Possible is a Freddie Mac based product so many lenders have access to this program. Ask your lender if Home Possible is the right program for you.

Many conventional lenders offer special programs and rates to people that serve within the community. Each lender has a different name for the program. You should ask your mortgage professional if you qualify for any such programs.