Mortgage Solutions
Conventional Mortgage
A conventional mortgage is a loan that is not guaranteed or insured by any government agency. It is typically fixed in its terms and rate.
Conventional mortgages can be the perfect match for people with a good credit history looking for a variety of down payment options and loan amounts. These mortgages follow the lending guidelines set forth by government-sponsored enterprises like Fannie Mae or Freddie Mac. The national conforming loan limit for 2024 is $766,550 for one-unit properties. A conforming loan is a mortgage that meets the dollar limits set by the Federal Housing Finance Agency (FHFA) and the funding criteria of Freddie Mac and Fannie Mae.
FHA Loans
A Federal Housing Administration (FHA) loan is a home mortgage that is insured by the government and issued by a bank or other lender that is approved by the agency. FHA loans require a lower minimum down payment than many conventional loans, and applicants may have lower credit scores than is usually required.
Here are a few of the features:
- Buy a house with as little as 3.5% down.
- Ideal for the first-time homebuyers unable to make larger down payments.
- The right mortgage solution for those who may not qualify for a conventional loan.
- Down payment assistance programs can be added to an FHA Loan for additional down payment and/or closing cost savings.
FHA Loans vs. Conventional Home Loans?
Refinance
A refinance loan on your home means that you are trading in your existing loan for a new one — hopefully one with more favorable terms. When you refinance your home loan, your new lender pays off your old home mortgage loan with the new loan. That, in essence, is the reason for the term “refinance” — you are financing the same home again, just with a different loan.
Many people refinance their home mortgage loan when rates have gone down significantly from when they initially bought their home. This way, the new home mortgage loan they receive may charge them less in interest over the life of the new home mortgage loan.
Many people take cash out of their home’s equity when they refinance their home mortgage loan, if they have a significant amount of equity in the home, either because they have been paying on their initial mortgage for several years or because their home has significantly increased in value, or both. They can use the cash they take out to renovate their home, pay off higher-interest debt or save for college or other impending major expenses.
Some people opt for a rate and term refinance, also known as a traditional refinance or no-cash-out refinance, which allows you to change the interest rate and loan term of your existing mortgage without changing the principal balance.
Temporary Rate Buydown
Even though the payments increase over the life of the loan, it is still considered a fixed-rate mortgage because the interest rate attached to the mortgage does not change after the first 1-3 years. If you believe that your income will increase significantly during the next few years, then a graduated payment loan might be right for you.
Additional information:
- Expect an increase in their income in the next few years
- Have excess *seller concessions* to use and want to take advantage of a low fixed rate
- Are looking to do renovations, make upgrades, or buy furniture for their new home
- Are going from renting to buying and want to ease into their mortgage with a lower payment
- Available on most loan types
*Seller concessions= when a seller pays some or all of a buyer’s closing costs
Buydown options:
- 3-2-1 buydown: A buydown of 3% in the first year, 2% in the second year, 1% in the third year, then back to the original locked rate in the fourth year for the duration of the term.
- 2-1 buydown: A buydown of 2% in the first year and 1% in the second year, then back to the original locked rate in the third year for the duration of the term.
- 1-1 buydown: A buydown of 1% in the first two years, then back to the original locked rate in the third year for the duration of the term.
- 1-0 buydown: A buydown of 1% in the first year, then back to the original locked rate in the second year for the duration of the term.
Additional Mortgage Solutions
Freddie Mac has created a new mortgage program for First Time Homebuyers. The main difference between HomeOne and Home Possible is that HomeOne does not have any income or geographic limits.
Features:
- Up to 97% financing for home purchase or rate-term refi
- No Income or Geographic Limits
- Flexible source of funds – can be used for your down payment and closing costs with no minimum contribution required from your own funds
- No Reserves required
- Conventional home financing with cancellable monthly Mortgage Insurance (MI) – helps you save money
Eligibility:
- One Borrower must be a first time home buyer (meaning no ownership interest in a residential property for past three years)
- 30 Year Fixed only
- All borrowers must occupy the property
- Primary residence only
- Homeownership education required if all borrowers are first time buyers – helps you get ready to buy a home and be prepared for the responsibility of homeownership.
- Borrowers can own other property
- Mortgage Insurance is required for LTV (Loan-to-Value) greater than 80%
Standalone HELOC. This product offers current homeowners a simple way of tapping into their home’s equity when a cash-out refinance doesn’t make sense due to having a low interest rate on their current mortgage. It’s a popular option for accessing cash that can be used to consolidate and pay down debt, make home improvements, cover tuition and more.
Piggyback HELOC. This product allows qualified conventional borrowers to secure a new mortgage on the home while simultaneously opening a home equity line of credit. Doing so allows borrowers with less available for a down payment to borrow additional money that can help them avoid mortgage insurance. It’s also a great option for borrowers with jumbo loan amounts who want to qualify for a conforming loan instead.
With a One-Time-Close construction loan, those three stages are combined into one single process. With this type of transaction, the borrower is able to obtain permanent loan approval, as well as close the interim and permanent loan transaction before construction begins, all in one single transaction.
Additional information:
- Save time and money. One closing means only having to cover one set of closing costs.
- One approval. No need for a second approval.
- Modify down option. Once the loan is complete, borrowers can modify down to secure a lower interest rate if the market changes or stay locked in no matter how the market moves.
- Build-period payments. Conventional borrowers can enjoy lower, interest-only payments while VA borrowers have no payments during the build period.
- Less out-of-pocket expense. The borrower doesn’t have to pay for the build and then get a mortgage. The mortgage pays for the build!
Cal HFA, also known as the California Housing Finance Agency, is a state agency that provides a range of housing finance programs and services to residents of California. The agency, which was established in 1975, is the largest provider of mortgage financing in California and is a key source of funding for first-time homebuyers, low-income households, and other underserved populations.
One of the key programs offered by Cal HFA is the CalHFA first-time homebuyer program. This program, which is funded by the state of California and the federal government, provides a range of financing options, including low-interest rate mortgages, down payment assistance, and other resources, to help first-time homebuyers achieve their homeownership goals.
FHA streamline financing is a type of mortgage refinance transaction that is specifically designed for homeowners who currently have an FHA loan. This type of financing allows borrowers to refinance their existing FHA loan without the need for a lot of the documentation and underwriting that is typically required for a traditional mortgage refinance.
One of the key benefits of FHA streamline financing is that it can provide borrowers with a streamlined and efficient way to refinance their existing FHA loan. Because the lender is already familiar with the borrower and the property, the underwriting and documentation requirements for an FHA streamline refinance are typically much less onerous than for a traditional mortgage refinance.
An ARM is an Adjustable Rate Mortgage. Unlike fixed-rate mortgages that have an interest rate that remains the same for the life of the loan, the interest rate on an ARM will change periodically. The initial interest rate of an ARM is lower then that of a fixed-rate mortgage, consequently, an ARM maybe a good option to consider if you plan to own your home for only a few years; you expect an increase in future earnings; or, the prevailing interest rate for a fixed mortgage is too high.
Most homeowners get into adjustable-rate mortgages for the lower initial payment, and then usually refinance the loan when the fixed period ends. At that time, the interest rate becomes variable, or adjustable, and the homeowner may refinance into another adjustable-rate mortgage, a fixed-rate mortgage, or sell the home.
The Department of Veterans Affairs (VA) is a federal agency that provides a range of benefits and services to military veterans, including health care, education, and home loan benefits. The VA’s home loan benefit, which is known as the VA Home Loan Program, is designed to help military veterans and their families buy, build, or improve a home.
One of the key benefits of the VA Home Loan Program is that it offers military veterans and their families the opportunity to buy a home with no down payment. This can be especially helpful for veterans who may not have a lot of savings or other assets, as it allows them to buy a home without having to come up with a large down payment.
FHA 203k loans are a type of mortgage financing that is specifically designed for homeowners who are looking to make improvements to their property. These loans, which are also known as rehabilitation loans or renovation loans, are provided by the Federal Housing Administration (FHA) and are insured by the government.
One of the key features of FHA 203k loans is that they offer a high loan-to-value ratio. This means that borrowers can finance a large portion of the cost of their home improvements with an FHA 203k loan, which can be especially helpful for those who are looking to make significant upgrades to their property.
A reverse mortgage allows homeowners, typically aged 62 and older, to access the equity they’ve built up in their homes without having to sell. Unlike a traditional mortgage where you make monthly payments to the lender, with a reverse mortgage, the lender pays you, the homeowner.
Here’s a breakdown of how reverse mortgages work:
Eligibility:
- You must be at least 62 years old and own your home with minimal remaining mortgage balance (if any).
- You’ll need to meet the lender’s credit score and financial requirements.
How you receive funds:
- You can choose to receive the funds from the reverse mortgage as a:
- Lump sum: A one-time payment.
- Line of credit: Access funds as needed, similar to a credit card.
- Monthly installments: Receive regular fixed payments over a set period.
Repaying the loan:
- You don’t necessarily make monthly payments like a traditional mortgage.
- The loan and accrued interest become due when:
- You sell the home.
- You permanently move out (e.g., to a nursing home).
- You violate the loan terms (e.g., failing to pay property taxes or homeowners insurance).
Important points to consider:
- Reduced equity: As the lender pays you, your home equity progressively decreases. This means there may be less inheritance left for heirs or a smaller profit if you eventually sell.
- Fees and interest: Reverse mortgages typically have higher closing costs and interest rates compared to traditional mortgages.
Down payment assistance (DPA) programs are designed to help homebuyers, especially first-time buyers, overcome the hurdle of the down payment required for a mortgage. These programs offer various forms of financial aid to bridge the gap between the purchase price and the amount you can afford to pay upfront.
Here’s a breakdown of how down payment assistance typically works:
Types of assistance:
- Grants: Free money that doesn’t need to be repaid, typically with income and location restrictions.
- Forgivable loans: Loans that are forgiven and don’t require repayment if you meet specific requirements, like remaining in the home for a certain period.
- Deferred payment loans: Low-interest loans with repayment postponed until you sell the home or refinance the mortgage.
Eligibility:
- Eligibility requirements vary depending on the specific program, but they often consider factors like:
- Income level (typically targeting low-to-moderate income earners)
- Location of the property
- First-time homebuyer status (some programs are exclusive to first-time buyers)
- Completion of homebuyer education courses
