If you have at least 20% of the purchase price (or appraised value if this is lower than the purchase
price) as a down payment, you can apply for a conventional mortgage.
Some lenders will require CMHC insurance because of the property’s location or type, even though
you have 20% or more equity.
If you have between 5% and 20% of the purchase price as your down payment, you can apply for
a high-ratio mortgage. Usually these have to be insured through CMHC, GE, or Canada Guaranty.
These are mortgage insurance companies. Purchasing insurance is a common way of qualifying for
a mortgage when you have less than 20% equity.
The insurance premium is charged only once (per mortgage), when the mortgage funds are
advanced. You can pay the premium yourself, but most people choose to add the funds on top of the
An open mortgage allows you to pay off part or the entire mortgage at any time without penalties.
Open mortgages usually have short terms of six months or one year. The interest rates are higher
than those for closed mortgages with similar terms.
VARIABLE RATE MORTGAGES / ARM (ADJUSTABLE RATE MORTGAGES)
At the start of a variable rate mortgage, the lender will calculate a mortgage payment that includes
principal & interest. For the term of the mortgage your payments usually do not change. However, as
the prime rate changes so will your mortgage rate.
If interest rates are dropping, less of each payment will go toward interest and more will go toward
principal. If interest rates rise, more of your payment will be interest and less money will be reducing
Some of these mortgages are completely open (you can pay off all or part of your mortgage at any
time without penalties). Others that offer a ‘prime minus’ interest rate (e.g. prime – 0.375%) may
charge a penalty.
CAPPED RATE MORTGAGES
These are variable rate mortgages that the lending institution has rate ‘capped’. In other words, the
rate will fluctuate with prime, but the institution guarantees that you will not pay more than a certain
interest rate, set by them.
These mortgages often have a penalty for early ‘payment in full’ and are often not portable.
CLOSED MORTGAGES / FIXED RATE MORTGAGES
The expression ‘closed mortgage’ originates from the 1980′s when this type of mortgage was
literally ‘closed’. You contracted to the lender to make your payments for the term chosen, you could
not pay anything additional, nor could you pay off the entire amount for any reason except the sale
of your property.
These days, there are many ways to pay down your mortgage principal quicker, though the
name ‘closed’ mortgage still remains. See pre-payment options for ways to pay off your mortgage
Fixed rate mortgages are the most popular type of mortgage. You benefit from the security of locking
in your mortgage interest rate, for lengths of time ranging from 3 months up to 25 years. The rates
are slightly lower than for an open mortgage for the same term.
If you think interest rates could rise, you may want to choose a longer term, such as a 5 or 10 year
term. If you think that rates are going lower, you may want to gamble on a shorter length of time.
Discuss this with your mortgage broker.
The major lending institutions have different pre-payment options allowed under their contracts.
These options allow you to pay off your mortgage faster. It is also possible to pay off most closed
mortgages prior to the end of the term or pay down a portion of the balance owing. However, lenders
charge penalties for doing so.
Please note that some lending institutions will not give any pre-payment options. It is wise to find out
what options are available before entering into any mortgage contract.
These are fixed rate mortgages for terms of 6 months or 1 year. Not all lending institutions offer
convertible mortgages. With a convertible rate mortgage you can lock into a longer term during the
current term of your mortgage without penalty – but only with the same lender. For example, if after
a couple of months you hear that interest rates are going to increase, you may change to a longer
term mortgage such as the 5 year term.
A hybrid mortgage is part variable, part fixed. It is a good way of diversifying to reduce risk.
About the Author
Jackson Cunningham – vancouver mortgage broker
There are almost always costs involved when you bring professionals into your life. So San Diego Home Mortgage refinance fees should come as no surprise.
Most of the time these fees are legitimate, but some lenders do charge more for the same service. And, charge for services that are provided free by others.
The major problems with Mortgage Loan fees fall into two groups: Those that were not adequately explained or understood. And those that were deliberately not discussed prior to closing, in fear that they might cause the borrower to back out of the loan.
The lender is responsible for providing the borrower with a “good faith estimate” which includes the approximate costs of all the refinance fees. Anything on this document that is not understood should be brought to the immediate attention of the lender for explanation. This is really the key to avoiding most surprises at closing.
Before we get to actual closing costs, let me explain the “NO CLOSING COST REFINANCE” San Diego Home Mortgage.
With the economy like it is today, a lot of folks don’t really have enough extra cash to pay the refinance fees without placing a strain on their budget, so the no closing cost concept has become popular. The costs are exactly the same. The advantage is that you can add your closing costs into the loan.
Of course there is a disadvantage to not paying them up front, and that is that you pay interest on them over the entire term of the loan.
The cost of all items listed on a settlement sheet will vary from lender to lender and depending on your geographical location.
The settlement sheet is divided in to two parts: The “prepaids” which are the costs of doing business with the lender and the “actuals” which are the hard money costs involved.
The actual costs may include:
Flood insurance premium, if required
Abstract or title search
Title insurance premium
Termite inspection, if required
Survey, if required
Prepaids that you might encounter:
Loan origination fee
Points or Buy down costs
Tax service fee
Settlement or Closing fee
Again, a lot of the listed items may not affect you depending on your lender and your unique situation. But read everything until you understand it, and if it doesn’t make any sense to you, or is unacceptable, contact your lender and make them satisfy your concerns.
By following these simple steps, San Diego Home Mortgage refinance fees won’t elicit any blood curdling screams from you at closing.
And, as always, I recommend that everybody get multiple rate quotes before deciding on which lender to use.
About the Author
Yes, you can get that San Diego Home Mortgage or refinance. For free instant rate quotes, stop by the website.http://www.realestaterefinanceblog.com
In February 2011, Bank of America made the decision to stop offering reverse mortgages to their borrowers. A few months later, Wells Fargo and SunTrust followed suit. These lenders made their decision after these mortgages failed to bring in profits comparable to other loan products.
This recent information leaves many consumers questioning the future of these loans. If these banks are pulling away from reverse mortgages, will others follow suit?
Reverse Mortgage Information Regarding the Future of These Loans
While some consumers might be worried, the Department of Housing and Urban Development (HUD) continues to support these reverse mortgages. Representatives of the department are quick to reassure consumers that these loans aren’t going anywhere. The fact is, these mortgages can be extremely beneficial to seniors who have built a significant amount of equity in their home but have limited savings.
In many cases, Social Security is not enough to keep seniors comfortable. If a person is in danger of losing his or her home or simply needs additional cash, tapping into one’s home equity makes a lot of sense. Two of the main benefits of taking a reverse mortgage is that the cash is tax-free, and borrowers will not need to repay the loan until they are no longer living in the home. This is what typically leads consumers to choose a reverse mortgage over other loan types.
Many consumers who seek information could truly benefit from these loans. While some banks may find reverse mortgages unprofitable, others will undoubtedly take advantage of the large market for these loans.
Reverse Mortgage Information that Might Impact Future Loans
While these mortgages are not going anywhere, it is possible that additional changes will be made to these loans in the future. This is partially due to the fact that many lenders consider these mortgages to be significant risk. To maintain this type of mortgage, borrowers are required to keep homeowner’s insurance, pay their property taxes, and make necessary repairs to the home. Borrowers that fail to meet these requirements risk foreclosure. Since reverse mortgages are given based on age and equity, instead of credit, lenders worry that borrowers will fail to pay the expenses required to maintain the loan.
To offset the risk, many lenders are calling for more extensive underwriting. While HUD has yet to release any reverse mortgage information that tells the public exactly what changes they will be making, they have indicated that they may allow additional underwriting in the future. These changes would allow lenders to more accurately assess whether a borrower is likely to pay their property taxes, insurance, and maintain their home.
If a borrower seems too high a risk, the lender would be able to reject the application or modify the loan to lower the risk. One option that lenders would have is to set aside a portion of a borrower’s equity. This money could be used to cover a borrower’s property taxes or homeowners insurance premiums should the borrower fail to meet these expenses on his or her own.
While these changes might immediately affect the number of consumers that take a reverse mortgage, these loans will continue to be popular in the future. According to the 2011 Harvard Housing Study, there will be approximately 35% as many senior households by 2020. It is likely that many of these consumers will need to tap into their home equity at some point during retirement.
Consumers interested in obtaining a reverse mortgage will want to follow current reverse mortgage information. In the past few years, several changes have been made to these loans. As new information is released, consumers will be given a better idea of what to expect from these loans in the future.
About the Author
Brittney is a financial services expert who prides herself on providing the most accurate reverse mortgage information. In her free time, she enjoys knitting, football, and spending time with friends and family. For more information, see http://www.reversemortgageinformation.com today!
In last few decades the whole process of residence loan and mortgage loan has improved a whole lot. In the beginning, suitable from the requirements on the terms and monthly installments every thing has found immense modifications and changes. Although in a few ways this whole course of action has turn out to be much less difficult, the mortgage loan is now caused with excellent rating, as well as the credit rating. A single exciting concept is always that such loan may even be approved within the existing debts quantity. The sheer range of your web dependent businesses that are willing to offer the mortgage loan is phenomenal, therefore, the number of the very best a single thousands is difficult job. You might have to discover a lot of things like the cost comparability, the lender’s reputation, and the latest market rates.
The loan terminology are not often fixed, consequently asking for the achievable change within your favour or seeking a few other lenders is smart. The present-day alterations inside the economy, and also the world economic depression has afflicted the curiosity marketplace as well, in such a way this works in the advantage of buyer. There are lots of varieties of residence loans, and mortgages to be had by maybe the same bank these days. The newest options consist of besides the timeframe, rate of return but probably the alternative of obtaining adjustable rates too.
The disposable earnings which is within your hand after deduction of all the monthly expenses will give you the range quickly. The house loan mortgage loan isn’t tough but it does need some research to be aware in theMortgage Quotes. The bottom line is, wishes for having the dream with all the right location may be inside the bag, if you might have the reasonable revenue level that may be there to ensure the periodic obligations.
About the Author
For more information about Mortgage Lenders visit my website.
These common misconceptions are in need of some serious corrections.
Mortgage refinancing is primarily done to lower the rate that a borrower currently has on his loan, to pay off an existing liability sooner or to obtain a cash-out. The cash can be used to pay delinquent bills and home remodeling projects. Some use the amount that they receive from a new bank to pay off the other bank that has foreclosed their house. But too many have been misled to the nature of refinancing. Here, we discuss the myths surrounding this method.
Myth: Refinancing can substantially cover your credit card debt.
Truth: While it may be true that your past purchases can be paid off once your refinancing application has been approved, the consequences in the long term aren’t favorable at all. Your credit card has accumulated purchases that could have been put off if not because of your impulsiveness. Tolerating your buying whims can cause your finances to fall and could lead to putting your home on the line. You might have cleaned your personal balance sheet now but your shop-a-holic nature won’t change, so in the end, you’re still worse off by spending for something that you’re most likely have less use of.
Myth: Refinancing would always demand for a new appraisal of your property.
Truth: It depends. Some lenders still require you to spend for a re-appraisal of your property regardless when you had your last application. However, a growing number of lenders are using past appraisals to eliminate the long paperwork that most first-time homebuyers are filing.
Myth: It is always safer to settle for a 30-year fixed mortgage when refinancing.
Truth: This isn’t necessarily correct. Refinancing is a smart choice for homeowners who have plans of staying less than 5 years in their house. This is common among those who transfer to other cities or those who plan of buying larger homes when their incomes improve. Ideally, a homeowner should continue staying in the house once the refinancing costs have been recovered. But if a homeowner has already completed 15-20 years of his mortgage, taking another 30-year loan would mean starting back at the first year again. Borrowers should not fall for a lender’s advice of letting them settle for a shorter payment term unless they are secured of their job for the next 15 to 20 years. A steady income and permanent work will always allow you to plan things in the future easily.
Myth: You will not pay anything with a no-cost refinancing.
Truth: Just like any zero-cost loan, you would still be shelling out for upfront fees in this kind of refinancing. The lender may increase the yield spread premium (YSP) or worse, offer you a higher interest rate.
Myth: You cannot sell your house while you are refinancing.
Truth: Some people are actually surprised to know that they can sell their homes while they are as early as 5 years into their refinancing. Traditionally, lenders are adamant to allow borrowers to put their house on sale for fear of missing their payments. However, if a homeowner can find another buyer who is willing to finance, the lender may allow him to sell the house. An early termination fee must also be paid to the lender once a buyer expresses his interest.
Myth: Low credit scores would deter you from pursuing your application for refinancing.
Truth: Not anymore. A lot of approved homeowners actually have tarnished credits considering the current recession. However, lenders are too picky these days and they approve applicants with low credit scores only if they can produce enough evidence that support better finances. In other words, they’ve passed the eye of the needle to achieve this.
About the Author
Andy Denton is the COO of http://www.Realty.com as well as a licensed real estate agent in North Carolina.
People make a lot of mistakes when applying for a mortgage – and here are the 4 most biggest ones. You can learn from the mistakes of others by knowing ahead of time what you should be discussing with your lender; you don’t want to get into a deal that you’ll regret three to five months later!
Mistake #1: Not Repairing your Credit BEFORE you Apply for a Mortgage
Not asking for a credit report and fixing errors in the report is probably the biggest mistake home buyers make – especially first time home buyers.
While a credit report is the be-all and end-all of your credit worthiness, it isn’t foolproof. Things like clerical or typographical errors, or even cases of mistaken identity, can lead to innacuracies. If you spot any, dispute them immediately and submit written proof. Don’t assume that a lender will “take it into consideration” that there’s a mistake on your credit report. Remember, the lenders only look at the score and the comments in the report – they really can’t base their decision anything else.
On the other hand, if there aren’t any mistakes but your credit score has some dings in it, take the necessary steps to fix your credit by not incurring any new debt, paying your bills on time, and reducing your income-to-debt ratio. Don’t ask a lender for a mortgage loan unless your credit is in tip top shape. Plan for around six months to have your credit report cleaned up before applying for a mortgage. If you need to repair your credit score, here’s how:
• Get a copy of your credit report from Trans Union, Equifax, and Experian (you can find them online). When you get your report, go over it carefully. Make a list of errors in your report. Any inaccurate information will affect your credit score. Keep records of your payments so you have something to show when the time comes for you to dispute your credit score.
• Call the credit bureau and say you want to dispute your credit report. If they have a dispute form online, use it to dispute any erroneous information. You can also initiate a dispute in writing. Send them a letter indicating what it is you want to dispute and clearly outline the circumstances. Submit proof. The more evidence you submit, the better and faster the credit bureau can investigate.
• While you wait for the credit bureau’s response, stop incurring new debt. Pay cash for your purchases and avoid the temptation to use your credit cards.
• Settle all delinquent accounts. Remember that your payment history plays a big role in your overall your credit score.
• Reduce your debt-to-income ratio – if your debt level is disproportionately higher than what you earn monthly, lenders tend to look at that as a red flag. Also, when you do get approved for a mortgage, your debt-to-income ratio will go up significantly. The “rule of thumb” is to try and keep all debt and mortgage payments at 43% of your income.
Mistake # 2: Not Getting Pre-Approved for a Mortgage
While getting a mortgage is not as difficult a task as many people think – especially first time home buyers – it’s not a good idea to assume that mortgage approval will be “automatic.”
I always advise my clients to get pre-approved for a mortgage loan before they even start house-hunting. That’s because pre-approval tells sellers that you’re serious about buying (which helps you in negotiations). It also helps you know exactly how much you can spend – and how much you can’t. You don’t have to worry about finding your dream home, and then discovering that your mortgage is not approved, or not at a competitive rate.
It’s also REALLY important to know that there’s a distinct difference between being pre-qualified and being pre-approved. Pre-qualification is a very easy process with usually no formality involved. The lender simply tells you how much you can borrow based on your income, debts and how much down payment you’re prepared to make.
Pre-approval is a more stringent process – and that’s the one you want to focus on here. Really, it’s the equivalent of applying for a loan. If you want to get pre-approved for a mortgage, a lender will ask you for your tax returns, pay slips, a letter from your employer stating how you long you’ve held the job and how much you make. After you submit all the information required, the lender runs a credit check. If all is satisfactory, you get pre-approved.
Though different lenders have different policies, most lenders will give you a period of three months to find a property you like, and will guarantee the terms quoted to you. This is helpful, because if the rates go up, you’re protected – and if they fall, you’ll get the better rate!
Mistake # 3: Borrowing “Too Much” Mortgage
If you have a good credit history and solid employment, lenders will gladly offer you as much mortgage as you’re willing to take. That’s a good news, bad news scenario!
It’s great because it gives you a lot of clarity when it comes to house hunting. You know that you’re going to be able to afford a home if one catches you eye. At the same time, having a pre-approved mortgage gives you more bargaining power (we covered this topic in our last lesson).
However, it can be tempting to take too much mortgage. Or in other terms: it’s easy to borrow more money than you actually need! And that can persuade you to buy a house that is, frankly, beyond your needs and your means.
Indeed, we’ve seen this happen in the US and they’re still recovering from that – some experts say it’ll take several more years before the housing market “corrects” itself.
Fortunately, we haven’t suffered nearly the same way in Canada, but to say we were totally undamaged by the housing bubble is inaccurate. Many people were talked into (or talked themselves into) taking as much mortgage as they could, buying as much “house” as they could, and believing that it would appreciate and they could sell it in a few years at a profit. Many people discovered that this just wasn’t the case.
Of course, it IS true that house is an investment, and a way of building equity. But if you’re not an investor or a speculator, then you shouldn’t use your primary house of residence to become one. There’s a lot of wisdom in the advice of “living within your means.” Don’t overstretch your limit and get yourself in a financial quagmire, which will only cause stress and missed payments – and hurt your credit score.
Mistake # 4: Not Shopping for the Best Mortgage Rate
Even if you don’t really like shopping, you really want to make sure you shop around for the best mortgage rate.
There are a couple of ways you can do this. You can “do it yourself” and compare rates from different institutions. Don’t limit your search to banks, either – there are many lending institutions out there, all of whom are allowed to offer you a mortgage.
The other way is to work with a mortgage broker, who can submit your potential mortgage to a number of lenders – and have them compete to offer the best rate and terms.
Remember not to make a final decision based on the interest rate alone. You have to study the actual mortgage contract. Look for things like prepayment options, flexibility, incentives, and other factors that make the deal more attractive.
Also be wary of “cash back” offers that lock you into long-term mortgages.
Some lenders like to sweeten the deal by offering a 5% to 7% cash back mortgage. This seems like a tempting offer, especially for first time home buyers who have a long shopping list for their new home – appliances, furniture, etc.
But study the cash back offer carefully. Some banks will give you the cash up front but only if you choose a fixed rate mortgage of 5, 6, or 7 years. The problem with this is that if interest rates fall, you’re going to have to cough up the higher interest rate that you signed into. A difference of 1% or 2% can make a significant difference in your mortgage payments and balance. Think about how much you can save if you didn’t lock yourself into a long term. Yes, you can get out of it, but the penalties are hefty.
Plus, if you opt to move your mortgage during the term, in addition to the penalties you’ll have to pay – which may actually be worth it if rates fall low enough – you’ll probably have to pay back all of the cash you received as an incentive! Many first time home buyers aren’t aware of this, and find out only after they try and move their mortgage 5 years from when they signed it.
Again, make sure you read the contract or, better yet, work with a qualified mortgage broker like me who can help you make it through the rate maze.
About the Author
Zack Ashan — a.k.a. “The Mortgage Guru” — is a licensed Mortgage Broker based in the Greater Toronto Area. Zack’s personal mission is to help as many people as possible WIN the mortgage game, by providing them with clear, honest and valuable advice. Learn more about Zack and pick up his groundbreaking book “The Insider’s Guide to WINNING the Mortgage Game” at http://www.mortgage-guru.ca.
The Canadian Federal Government is tightening mortgage lending rules as historic low rates are raising fears of a potential housing bubble like that which occurred in the United States.
Canadian Finance Minister James Flaherty said “there is no compelling evidence of a bubble but said the government is taking proactive measures to prevent one.”
Minister Flaherty then added.”We’re looking ahead and taking action now before there is a problem.”
To qualify for a Canadian government-insured mortgage, now home borrowers will have to meet the standards for a five-year fixed-rate mortgage – up from the current standard for three years.
Flaherty said “if Canadians want to purchase a property where they will not be living, such as an investment property, they will have to come up with a minimum of 20 percent down payment.”
Flaherty and the Federal Government of Canada are now going to impose tighter restrictions on how much money people can borrow against their houses. Now instead of being able to borrow 95 percent of the value of their property, the limit will now be 90 percent. The lending limit changes go into effect April 19, 2010.
Minister Flaherty said, “We do want to discourage the tendency by some to use their home as an ATM machine, the tendency by some to buy three or four condominiums by way of speculation,” “This will discourage the kind of mortgage refinancing that can create unsustainable debt levels as interest rates go up.”
Canada’s housing recovery has been so rapid that economist and the Canadian Federal Government are very concerned for the near and long term. Fortunately unlike the United States, there has been no destructive and devastating home mortgage meltdown. Accordingly, there has been no banking crisis in Canada, where there is greater oversight of mortgages. The Canadian Central Bank has to keep interest rates at a historic low of 0.25 percent for the near term.
In the recent past a variable-rate home mortgage interest rates have been as low as 2 percent to 2.25 percent in Canada. At the same time Canadian consumers where faced fixed five-year rate available at Canada’s top five banks is 5.39 percent.
Many bankers and politicians are concerned that home loan borrowers who are currently taking out variable-rate mortgage rates will face a major struggle to make payments when interest rates rise. Over the recent months, Canada’s Central Bank has been warning Canadian homeowners for months that should make sure they can financial afford and absorb an increase in their floating-rate mortgages once housing interest rates start rising.
About the Author
Howard Edward Haller, Ph.D. – Real Estate Expert, Licensed Real Estate Broker, Licensed General Contractor, Real Estate Investor & North American Real Estate Mentor. He is the CEO of Haller Companies (Real Estate Brokerage, Construction & Investment) and The Leadership Success Institute, a Professional Speaker & Book Author: “Leadership: and Adversity” & “Intrapreneurship Success”
When deciding to buy a home, and you choose FHA, it is best to try and calculate using an FHA calculator. This calculator is critical in helping you to determine what you and your family can afford.
The FHA calculator is broken down into pretty easy terms. You can easily determine your new monthly payment will be with principal and interest, and the maximum amount that you qualify for. In order to make sure that you get the appropriate answer, you will want to input your income and your expenses both into a monthly format. You need to be as thorough as possible so that you get an accurate idea of what to expect.
When using the FHA calculator, be sure to input the housing expense information. Since you have probably already been looking at homes, you can input the monthly expense information that you suspect it to be. You can get a good idea of what this will be as most MLS sites will provide you with a similar calculator on the page for you to play with those numbers.
Be sure to input your monthly car payment and other expenses in order to calculate what you can afford. You have to be honest with yourself about this. If you have a high car payment and a lot of other outstanding obligations, the answer you get back may not be the one you want. The idea behind the FHA calculator is to help you figure out if you can do an FHA loan.
Last but not least, the most fun feature about the FHA calculator is that you can play with the loan term and the interest rate to see what payment you will get. Mortgage rates are at the lowest they have been in over a decade. This is a great time to buy, and if you are a first time homebuyer you have an advantage with the new tax credit for first time homebuyers. With these two things combined, you can certainly find an affordable home with the large inventory you have to choose from.
Determining how much you can afford, will help you figure out where you need to be looking for a home, and how much you can spend. This way, your view of looking for homes is realistic. For example, if you make $40,000 a year you shouldn’t be looking at homes that are $250,000. Take a good look at what is going around you and you can see why we are in the situation we are in. This is the benefit in using the FHA calculator; you can easily look at your ability to get into a home this year. For more information, you can visit. http://www.fhaloansnow.net.
About the Author
I have been in the Real Estate industry for 19 years. I am a licensed HUD FHA endorsed mortgage banker, a licensed California Real Estate Broker. I hold the designation of Certified Distressed Property Expert, Certified Mortgage Planning Specialist, and a Certified Mortgage Coach. I specialize in real estate finance of residential properties 1-4 units. I am also a recognized short sale specialist.
If You want to know more please vist my websites:
Maximum Purchase Price
At the time of this writing, the maximum purchase price for conforming conventional loan ranges from $417,000 to $729,000. This amount is updated yearly and is dependent upon the county in which the home is located. Any loan above that amount is considered a jumbo or non-comforming conventional loan.
The maximum purchase price varies from state-to-state for an FHA loan. At the time of this writing, the range is $271,050 – $729,750 (again, depending on the home’s location). Typically, FHA loan limits are approximately half of what can be found in the conventional loan market.
Minimum Down Payment
Down payments range from 0 to 20% for conventional loans. The larger your down payment, the lower your interest rate and mortgage insurance costs. Higher credit scores and larger cash reserves are required for lower down payments.
FHA loans are quite flexible with regards to down payments. Generally, the minimum amount down is 3% of the home’s sale price. This 3% is made up of 2.25% down payment and.75% paid toward FHA allowable closing costs. This 3% investment can be in the form of a gift from your family, church, or government agency.
Conventional loans require that the owner/occupant of the home qualify on their own without help from a non-occupant. FHA loans allow for the income of non-occupants to be used when qualifying for the loan.
For a conventional loan, your PITI (mortgage payment) should not exceed 33% of your gross monthly income. Combined debts (PITI and other recurring debt) should not exceed 41%.
Your PITI (your mortgage payment) on a FHA loan should not exceed 29% of your gross monthly income. Combined debts should not exceed 41%.
“Private Mortgage Insurance” (PMI) is mortgage insurance for conventional loans. The rates vary and mostly depend on the amount of your down payment. If you pay 20% down or more down, you are not required to carry PMI.
Mortgage insurance for FHA loans is called “Mortgage Insurance Premium” (MIP). Much like the conventional loan, your down payment amount will determine your required mortgage insurance. MIP is required for all FHA loans though MIP rates are typically lower than PMI rates for conventional loans with a similar 3% down payment.
Credit Score and Credit Rating
A conventional loan generally requires a higher credit score than an FHA loan. The minimum score will vary depending on your down payment, income and cash reserves. For a conventional loan, it is best to have a credit score of at least 620.
There are no stated minimums for FHA loans, but in most cases lenders will require a credit score of greater than 600 to get an FHA loan. The higher your score; the lower your interest rate.
About the Author
Elizabeth Dennis is an editor and writer for Newbuyer.com. NewBuyer selects and reviews auto and home buying resources to help buyers make confident, well-informed purchasing decisions. Newbuyer has recently launched its own collection of original home buying articles.
Before you buy a house you need to understand the different financing options that are available to you. Home loans differ mainly in the interest rate and the points charged. Loans can also vary depending on who offers the loans and how they are backed. The two most common types of home loans are conventional and government backed. You can get your loan from a banker or you can get a loan from a banker backed by Uncle Sam. Loans vary depending on how the payments are structured. The two most common structures are fixed rate mortgages and adjustable-rate mortgages. Here I will tell you about the different types of home loans you have available to you.
Conventional loans are secured from a lender – usually a bank, mortgage broker, or savings and loan institution. Conventional loans usually require 3 to 20 percent for a down payment. You can put down less than 20 percent, but if you do, most lenders will require that you purchase private mortgage insurance (PMI). This insurance increases the costs to you because you have to pay to protect the lender in case you default on the loan.
The two most common types of government loans are FHA (Federal Housing Authority) which are insured by the federal government, and VA (Veterans Administration), which are guaranteed.
FHA loans are attractive because they are assumable(someone else can take over the payments). There are no penalties for prepaying an FHA loan.
Fixed Rate Mortgage Loans
On a fixed rate mortgage, your monthly payment never varies. You pay the same amount for the first payment as you do for the last. If interest rates go up, it doesn’t matter; your payment stays the same. Likewise if interest rates go down, your payments stay the same.
Adjustable-Rate Mortgage Loans
When you get an ARM loan, you usually pay a lower rate initially than on a fixed-rate mortgage. The interest rate on the ARM loan is tied to an index that reflects the current money market. If the interest rates go up on your renewal date, your payments go up. If the interest rates go down your payments go down.
I hope that this article has given you some useful information that will help you in your search for a home loan.
About the Author
Dan enjoys writing articles that help people find the information they need to make informed choices. Visit his latest website about
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