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Need a better understanding of different types of loans?
QM (Qualified Mortgage) Lending
A conventional mortgage or conventional loan is a home buyer’s loan that is not offered or secured by a government entity. They are available through or guaranteed by a private lender or the two government-sponsored enterprises—Fannie Mae and Freddie Mac.
3% minimum down payment for HomePossible and HomeReady
5% minimum down payment for Standard Program
Mortgage Insurance is required for any loan with less than 20% equity.
ARM (Adjustable Rate Mortgage)
ARMS are usually amortized over 30yrs and the rate is guaranteed for a certain amount of time (eg. 5/1 ARM is fixed for the first 5 years and adjusted each year after, eventually reaching a maximum rate). Some ARMS are Interest Only for a certain amount of time before a borrower begins paying principal.
Government Loans are "insured" loans. They are known as FHA, VA, and USDA. Each loan has its own unique requirements that need to be met in order for a borrower to obtain the loan. Below is a brief overview of the differences.
Borrowers pay a "funding fee" or an "upfront mortgage insurance" payment (usually financed into the loan) and these fees are different for each loan.
3.5% of the Purchase Price down payment.
Funding Fee: 1.75% of the loan amount (Purchase Price less down payment equals loan amount)
Mandatory monthly Mortgage Insurance.
Requires minimum of
0% down payment
First use is 2.5% of the loan amount.
NO monthly Mortgage Insurance
0% down payment
Funding Fee: 1% of Loan Amount
Mortgage Insurance is an annual fee equal to 0.35 percent of the loan amount divided by 12 months.
Alternative ways self-employed, and certain other, borrowers can show income.
Bank Statement Loan
Self-Employed borrowers can use 12-24 months of company and personal bank statements for income.
Property investors can use rental income to qualify for this type of loan.
Self-Employed borrowers can use 12 months P&L to shown income.
All loan types above are available for refinancing programs, although some loan parameters will change, depending on which program is the best "fit" for your scenario. Of course, there is no down payment required on a Refinance. You already own the home.
When a borrower wishes to use the equity in their home for debt consolidation, home improvements, pay for your child's college, pay off student loans, start a business, invest in the stock market, buy investment property, and just about anything else you want to do.
Rate and Term Refinance
When a borrower wants to take advantage of lower interest rates or change the term of their loan (eg: 30yr to 15yr).
Refers to the refinance of an existing FHA-insured mortgage requiring limited borrower credit documentation and underwriting. Streamline refinances are available under credit qualifying and non-credit qualifying options. "Streamline refinance" refers only to the amount of documentation and underwriting that the lender must perform, and does not mean that there are no costs involved in the transaction.
The basic requirements of a streamline refinance are:
The mortgage to be refinanced must already be FHA insured.
The mortgage to be refinanced must be current (not delinquent).
The refinance results in a net tangible benefit to the borrower. The definition of net tangible benefit varies based on the type of loan being refinanced, and the interest rate and/or term of the new loan.
Cash in excess of $500 may not be taken out on mortgages refinanced using the streamline refinance process.
IRRRL (Interest Rate Reduction Refinancing Loan)
You may see it referred to as a "Streamline" or a "VA to VA." These loans are typically used to reduce the borrower's interest rate or to convert an adjustable rate mortgage (ARM) to a fixed rate mortgage.
Do you know your mortgage terms?
Debt to Income: The percentage of total gross income accounting for the borrower's total monthly debt load, including mortgage.
Escrow: The monthly taxes and insurance, of a mortgage payment, that are set aside and paid by the mortgage servicing company when it is time to renew.
Loan Amount: Total amount borrowed.
Loan to Value: Also referred to as LTV is the equation of how much someone is borrowing against the value (appraisal) of the property.
Mortgage Insurance: A policy that protects lenders against losses that result from defaults on home mortgages.
Non-QM: Non-Qualifying Mortgage.
PITI: The combined total of Principal, Interest, Taxes, and Insurance.
QM: Qualifying Mortgage
Single Premium Mortgage Insurance: One-time upfront mortgage insurance.