Financing Options

VA loans are a type of financing provided by the U.S. Department of Veterans Affairs to offer private home financing to qualified veterans (and their surviving spouses) in areas where private direct home financing is otherwise unavailable.

VA General Guidelines*

• Max financing: 100%
• Occupancy Type: Primary Residences Only
• Loan Limits: $417,000 (you can actually go to 1 million with 5% down payment and you get to use conforming rates!)
• Minimum Credit Score: 600 & Auto-approval

Mortgage Insurance

All these government programs have up-front mortgage insurance that is financed in (1.5 to 3.3% depending on the program & your individual financing scenario). Additionally, FHA has monthly mortgage insurance.

Gift Funds & Seller Contributions

FHA, USDA & VA allow for seller paid closing costs up to 6% of the purchase price

They also allow for gift funds. Borrowers can receive a gift for the down payment and/or closing costs. Gift funds must be from a relative.

Government Programs & Credit Scores

There are interest rate adjustors for credit scores <620 on FHA & VA.

These programs do not have any pricing adjustors for scores 620+. Someone with a 620 (D) score gets the same rate as someone with a 680 (B-)!

Some lenders do give pricing incentives for scores over 720 (A)!

Rates are great on these programs. FHA & VA were pricing at 5% on Friday. USDA was 4.875% (based on a 620 + score, 30 year purchase).

* Information provided by Carolina Home Mortgage

The Federal Housing Administration (FHA), under the U.S. Department of Housing and Urban Development (HUD), indirectly provides loan by insuring federally approved private mortgage lenders and/or brokers who offer FHA loans. Established as a result of the National Housing Act of 1934 following the Great Depression, the primary purpose of FHA loans is to allow qualified buyers to purchase primary residences with low down payments and mortgage costs. Below are a few typical guidelines buyers should be aware of when looking to take advantage of FHA loans.

• Max financing: 96.5% (effective Jan 1, 2009)was 97%
• Occupancy Type: Primary Residences Only
• Loan Limits:
  • Durham, Orange, Chatham—$331,250.
  • Wake, Franklin, Johnston— $295,000
• Minimum Credit Score: 600, but effective March 13th 2009, several lenders changed to a minimum of 620.

Did you know FHA allows non-occupying co-borrowers?

Let’s say you have a client who is sending their child to UNC. As long as the child is living in the property, they can qualify for FHA financing. The parent(s) would be non-occupying co-borrower(s). The child would be the occupying borrower.

The basic premise of this type of loan is that parental income & credit is used to qualify in order to help their child buy a home, establish mortgage history, avoid renting etc.

The great news? The occupying borrower does not need to earn any income on FHA! (Conventional requires 10% down payment & income).

* Information provided by Carolina Home Mortgage

USDA Loans

Loans from the U.S. Department of Agriculture (USDA) are loans insured by the federal government offered to buyers looking to purchase a primary residence in a rural town or area (population is typically under 10,000). There are a number advantages to USDA Rural Development loans over other types of financing including:

• Borrowers are not responsible for mortgage insurance payments.
• Lenders may offer low 30 year fixed rates.
• USDA loan may cover home repairs.

In order to begin the process of obtaining USDA loan, contact your local rural development list for list of approved lenders.

USDA Guidelines*

• Max financing: 100%
• Occupancy Type: Primary Residences Only
• Loan Limits: $417,000
• Minimum Credit Score: 580 & Auto-approval
  

USDA Eligibility

USDA financing is property & income specific. Property: this means that the property itself must be in an approved area. For example, all of Chatham County qualifies.

Website: http://eligibility.sc.egov.usda.gov/

Income: income limitations are based on the number of people who will occupy the home.

For example: A family of 4 can earn $82,000 year and be eligible for 100% financing, allowing them to buy a house up to approximately $325,000. (these income limitations may be increased even further in April 2009)

* Information provided by Carolina Home Mortgage

The Federal National Mortgage Association (or Fannie Mae) was established in 1938 as a federal agency whose purpose is to provide stability and affordability to the national housing and mortgage markets. In 1968 Congress chartered Fannie Mae as private shareholder-owned government-sponsored enterprise (GSE). Fannie Mae insures loans through the purchase and securitization of mortgages to ensure the availability of funds to money lenders for homebuyers.

The maximum amount that Fannie Mae will guarantee is known as the "conforming loan limit", which is set annually by the Office of Federal Housing Enterprise Oversight (OFHEO). Any mortgage amount above the limit set by the OFHEO is considered a non-conforming jumbo loan, and may not be guaranteed by Fannie Mae.

Website: http://www.fanniemae.com/

Loans not insured by the Veterans Administration, the Federal Housing Authority, the Rural Housing Service, or the USDA are known as conventional loans. Because such loans are offered entirerly through private lenders, they are not subject to as thorough scrutiny by the Federal Government as other lender agreements, nor are they required to conform to regulations followed by government-sponsored enterprises including Freddie Mac and Fannie Mae.

Conventional loans may fall of the following categories:

Conventional Fixed Rate Loan

• Fixed in 15, 20, 25, or 30 year terms
• Interest rate remains fixed for the life of loan
• Follow the strictest eligibility guidelines
• Loans are not assumable
• Loans may not contain prepayment penalty

Conventional Adjustable Rate Mortgage (ARM) Loan

• Gives buyer the option of 10 - 1 year, 7 - 1 year, 5 - 1 year, 3 - 1 year and 1 year rate
• Based on a weekly average yield on United States treasuries:
  • Adjusted to a constant maturity of one-year
  • Published weekly by the Federal Reserve or the 11th District Cost of Funds Index.
• Interest rate and payment adjust annually after initial fixed period of 1, 3, 5, or 10 years on the 1/1, 3/1, 5/1 and 10/1 products respectively

Jumbo Fixed Rate Loan

Jumbo Fixed Rate Loans differ from other loans in that they accommodate mortgage amounts in exceeding $417,000. Interest rates on such loans are typically higher than than other loans because their dollar amounts prevent them from being insured by governement entities, thus putting the lender at a higher risk.

• Fixed in 15, 20, 25, or 30 year term
• Interest rate remains fixed for the life of the loan
• Loans are not assumable

Alternative A Fixed Rate Loan

The purpose of Alternative A Fixed Rate Loans is to help home buyers needing customized financing because of unusual circumstances regarding acquiring their loan.

• Fixed rate loan that carries the option of a 15 or 30 year term
• Interest rate remains fixed for the life of the loan
• Loans are not assumable
• Loans do not contain a prepayment penalty

North Carolina Financing Resources

North Carolina Housing Finance Agency
http://www.nchfa.com/Homebuyers/index.aspx

What North Carolina Offers First Time Home Buyers
http://www.nchfa.com/Homebuyers/HBwhatweoffer.aspx