Wednesday, September 13, 2017

The Different Types of Mortgages Available to the Home Buyer

What is the best type of mortgage for you?


There are several types of mortgage available for borrowers to choose from. Conventional loans, FHA Mortgage, VA Mortgage, High Balance Loan, and Jumbo Loans.

Types of Mortgages Available and Your Options


Conventional, FHA Or VA Mortgage?

Conventional loan would require the mortgage borrower to come up with at least 5% as down payment on a single family home, Multi family, condo as long as the loan size is $ 424,100 as of Year 2017.

FHA requires the mortgage borrowers to come up with 3.5% as a minimum down payment for purchase. FHA has its own county limit on the loan size that borrowers can borrow in this category. The advantages are that it has lenient underwriting. It basically comes with two pre conditions. One is Upfront Mortgage Insurance Premium and Monthly Mortgage insurance premium. FHA or Federal Housing Agency essentially vouches that in the event of default by the borrower on his housing payment the sum shall be made good by the agency to the bank. So banks having a cushion feel comfortable in lending with a very low down payment of 3.55 however the borrower has to buy the policy to qualify for FHA by paying a premium just the way you buy an insurance policy and then you make recurring monthly payments as long as you are in FHA bucket.

The mortgage industry was hoping that for the year 2017 Monthly Mortgage Insurance premium will be brought down but that never happened. Even if the borrower has a loan amount which is 80% of the value of the home he still is required to pay mortgage insurance every month. Where as in case of conventional the moment your new loan amount is 80% of the value of the current home price, you can get mortgage insurance waived.

The present chart for FHA Monthly Mortgage Insurance is as per below for 2017:


2017 MIP Rates for FHA Loans Over 15 Years
If you take out a typical 30-year mortgage or anything greater than 15 years, your annual mortgage insurance premium will be as follows:

Base Loan Amount
LTV
Annual MIP
≤ $625,500
≤ 95%
80 bps (0.80%)
≤ $625,500
> 95%
85 bps (0.85%)
>$625,500
≤ 95%
100 bps (1.00%)
> $625,500
> 95%
105 bps (1.05%)


2017 MIP Rates for FHA Loans Up to 15 Years
Homebuyers who can afford to pay off their loans quicker and opt for a shorter term, such as a 15-year mortgage, will benefit from lower mortgage insurance premiums, as follows:

Base Loan Amount
LTV
Annual MIP
≤ $625,500
≤ 90%
45 bps (0.45%)
≤ $625,500
> 90%
70 bps (0.70%)
> $625,500
≤ 78%
45 bps (0.45%)
> $625,500
78.01% to 90%
70 bps (0.70%)
> $625,500
> 90%
95 bps (0.95%)


How Long Will You Pay the MIP?
For loans with FHA case numbers assigned on or after June 3, 2013, FHA will collect the annual MIP, which is the time at which you will pay for FHA Mortgage Insurance Premiums on your FHA loan. They are as follows:

Term
LTV%
Previous
New
≤ 15 years
≤ 78%
no annual MIP
11 years
≤ 15 years
78.01% to 90%
cancelled at 78% LTV
11 years
≤ 15 years
> 90%
loan term
loan term
> 15 years
≤ 78%
5 years
11 years
> 15 years
78.01% to 90%
cancelled at 78% LTV and 5 years
11 years
> 15 years
> 90%
cancelled at 78% LTV and 5 years
loan term

 

Current Up-Front Mortgage Insurance Premium


The UPMIP is currently at 1.75% of the base loan amount. This applies regardless of the amortization term or LTV ratio.

What is FHA Stream Line Refinance: About FHA Stream line and FHA Mortgage Rates


FHA stream line is available to borrowers who already have an FHA loan. In this category the borrower is not required to go for a fresh appraisal and underwriting is lenient in terms of income and credit score.


What is a VA Mortgage?

VA Mortgage is made available to such borrowers who are an active duty military personnel, veterans and certain other groups.

The mortgage is guaranteed by Department of Veterans affairs and one can even buy a home with no money down.

There is no mortgage insurance on VA Loan which is an advantage to the borrower unlike conventional and FHA Loan.

  • VA Loans do not have any pre payment penalty.
  • Closing cost are lower in case of VA Loan.



What is a Jumbo Loan?

As long as the loan size is within $ 424,100 you are ideally within Fannie guidelines. If you do exceed this limit but within the loan size set by Fannie Mae. You are still in confirming loan bucket as explained in below example where the loan size is higher than $ 424,100 but if for your specific county like in our example we have taken Alameda county in California for Single family home. We are still safe.

As an example: For Alameda county California, A single family home with a loan size of $ 636,150 would be confirming as its within the guidelines of Fannie mae and Freddie mac. Its easier for banks to do such loans and even sell them to investors.

However if you cross this threshold for a Single Family Home and you are in Alameda county. You are now into Jumbo Loan category.

Here there are bank specific niches as its portfolio lending. The rates are generally higher and typically you should seek help from an expert who understands the market and banks and lenders as to their policy on underwriting, products and rates.


For more information on The Benefits of Using an Independent Mortgage Adviser visit www.affordable-payment.com or call 323-705-3191 if you are a California Mortgage borrower or If Texas Mortgage Borrower call 713-463-5181 EXT 154 

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