Forward Mortgages in Albany

Conforming Mortgage Loans

Conventional Mortgage

A type of mortgage in which the underlying terms and conditions meet the funding criteria of Fannie Mae and Freddie Mac.  The typical down payment on a conventional mortgage is 5%.  However, if you are a first-time home buyer you can opt to put as little as 3% down.  The maximum loan amount for a single family home is $417,000.  A loan amount above $417,000 for a single family residence is considered non-conforming and would be subject to jumbo pricing.

Conventional mortgages include private mortgage insurance (PMI) for those who put less than 20% down.  The PMI cost is dependent on loan-to-value (LTV) and credit score.  If someone is putting 5% down, then that would give them a 95% LTV.  The higher the LTV and lower the credit score the higher the PMI cost.  Private mortgage insurance is based on risk, just like interest rates and many types of insurances that one might purchase.

The guidelines for a conventional mortgage are a little more strict than that of an FHA, VA or USDA loan.  The debt-to-income guidelines on a conventional mortgage are more conservative and there are credit score parameters that can affect the interest rate.  A conventional mortgage is typically better suited for a borrower that has more money to bring to closing.

FHA Mortgage

This is a mortgage that is insured by the Federal Housing Authority (FHA).  The FHA mortgage has loan limits that are dependent on the county you live in.  This is the most widely used mortgage for borrowers who are looking to limit their out-of-pocket expense.  An FHA mortgage only requires the borrower to put down 3.5% and has more liberal debt-to-income guidelines.

While the FHA guidelines are more lenient for the borrower, it is much more strict when it comes to the property.  If the roof has less than two years of life expectancy it has to be replaced.  That is just one example.  There are many more FHA property guidelines that will be covered in the learning center.  Another one that is worth pointing out here is the well and septic guidelines.  The well has to be 50 feet away from the septic tank, 100 feet away from the leech field and 10 feet away from the property line.

FHA mortgages include a mortgage insurance premium (MIP).  There is an upfront MIP fee (1% of loan amount) that can be financed into the loan and there is also an annual MIP fee that is 1.15% of your loan amount.  The annual MIP is divided by twelve to calculate it into monthly payments.  The annual MIP is included in your monthly mortgage payment.  An example of annual MIP:  $100,000 x 1.15% = $1,150/12 = $95.83 monthly.  FHA has decreased their upfront MIP from 2.25% to 1%, but they increased their annual MIP from .55% to 1.15%.  While this increase definitely makes it more expensive for people to borrow an FHA mortgage, FHA is still one of the best mortgage loans for a low down payment solution.

FHA mortgages are fully assumable.  This can be a huge advantage if there ever comes time to sell and interest rates are higher than what you have on your mortgage.  It’ll make buying your home more attractive than others, since the buyer would benefit from a lower interest rate.  You might be able to get more for your house if buyers can assume your mortgage at a lower interest rate than what’s available in the market at the time.  The buyer would have to be qualified to take over the mortgage liability.  Once your mortgage is assumed by someone, you are freed of the mortgage liability.

FHA also offers a streamline refinance.

FHA has permitted streamline refinances on insured mortgages since the early 1980’s. The “streamline” refers only to the amount of documentation and underwriting that needs to be performed by the lender, 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 should be current (not delinquent).
- The refinance is to result in a lowering of the borrower’s monthly principal and interest payments.
- No cash may be taken out on mortgages refinanced using the streamline refinance process.

Lenders may offer streamline refinances in several ways. Some lenders offer “no cost” refinances (actually, no out-of-pocket expenses to the borrower) by charging a higher rate of interest on the new loan than if the borrower financed or paid the closing costs in cash. From this premium, the lender pays any closing costs that are incurred on the transaction.

Lenders may offer streamline refinances and include the closing costs into the new mortgage amount. This can only be done if there is sufficient equity in the property, as determined by an appraisal. Streamline refinances can also be done without appraisals, but the new loan amount cannot exceed the original loan amount.

VA Mortgage

VA’s Home Loan Program is for veterans and active duty military personnel and certain members of the reserves and National Guard. VA’s program provides an excellent product and benefit for those individuals who have served or are serving to protect our families and our nation.

VA Funding Fee

Private mortgage insurance is not required on VA loans; however a Funding Fee is required in most cases.  The VA Funding Fee can be financed or paid in cash. However, total loan amount, including the financed funding fee, can never exceed the maximum allowable loan amounts. Federal law requires all Veterans to pay a Funding Fee, with the following exceptions:

Funding Fee Exemption

  • A Veteran must establish any claim for exemption from the fee. The following are the only exceptions allowed:
  • Veterans receiving VA compensation for service-connected disabilities.
  • Veterans who would be entitled to receive compensation for service-connected disabilities if they did not receive retirement pay.
  • Surviving spouses of veterans who died in service or from service-connected disabilities (whether or not such surviving spouses are veterans with their own entitlement and whether or not they are using their own entitlement on the loan).

Surviving Spouse

  • A VA loan is available for the surviving spouse of those who served in the armed forces and meet the qualifying guidelines, if she has not remarried.

VA is a great loan program for the Veteran that is looking to minimize his or her out-of-pocket costs at closing.  There is no down payment required, and the seller can contribute towards your closing costs and pre-paids.  This loan program, just the FHA mortgage, is fully assumable.

Rural Housing Guaranteed Loan

The USDA loan is one of the only loans left that offers 100% financing.  This mortgage loan program, however, is only permitted to those who meet the moderate income limits and for properties that are located in a rural development eligible area.  Click here for property eligibility.

The advantages:

  • Loan up to appraised value plus the guarantee fee.
  • Maximum loan amount is the appraised value plus a one time guarantee fee.
  • No cash contribution or cash reserves required from applicant.
  • Unrestricted gifts.
  • Non-traditional credit acceptable.
  • Streamlined credit documentation available – based upon credit.
  • No minimum credit score.
  • Repayment ratios are 29/41. Ratio waivers are allowed with documented compensating factors.
  • Not limited to first-time home buyers.
  • Competitive market based fixed interest rates with 30 year term.

There is a 2% upfront mortgage insurance fee that gets financed into the loan and a monthly mortgage insurance fee that is calculated based on .3% of the loan amount divided by twelve. The good news is it’s much better than the 1.15% monthly mortgage insurance fee paid on an FHA mortgage. If you and the property meet the eligibility requirements, then this is probably the best way to go if you’re looking for a mortgage loan that will get you into a property with very little money out of pocket.