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THE MORTGAGE BREAKDOWN

DEANA M. DEVEREAUX • April 25, 2022
If you’re buying or refinancing a home, it’s important to know the different loan types that exist so you’re best prepared for what to expect. There are four main loan types that all have specific qualification criteria. These four loan types include conventional, FHA, VA, and USDA and each loan type has its pros and cons that we will walkthrough below.

The most common mortgage type is a conventional mortgage and which is a loan that is not backed by the government and is used when the buyer doesn’t meet the criteria for an FHA, VA, or USDA loan. Within a conventional mortgage, you can choose either a fixed rate or adjustable rate, also known as an ARM. The safer of the two options is a fixed-rate mortgage because this loan type ensures that you have the same interest rate on the first and last day of holding the loan. The riskier option is an ARM because you have a fixed rate for a particular period of time and then the rate can and likely will adjust based on the market. 


In terms of down payments with a conventional loan, you’re able to put as low as 5% down, but if you put any less than 20% down on the purchase of your home you will be required to pay private mortgage insurance, also known as PMI. This is a monthly payment that protects the bank if you default on your loan. To get rid of PMI, you will need to reach a minimum of 20% or a maximum of 22% equity in your home.


The most common fixed-rate conventional loans have 15-year and 30-year terms but you could have a mortgage for 10, 15, 20, or 30 years at your fixed rate. A 30-year fixed-rate loan is the most common loan type amongst homeowners today because this loan allows you to have lower payments than a shorter-term loan and the interest rate is the same on day 1 as it will be on day 10,950. Nerd Wallet reported that the major pros associated with a 30-year fixed-rate loan include predictability, ease of qualification, increased tax deductions, and ultimately the ability to afford more houses per payment. Some of the cons associated with a 30-year fixed-rate mortgage include a danger of overborrowing, higher interest rates, and slower growth in equity.


The most popular loan type associated with financing is a 15-year fixed-rate mortgage. Your interest rate is set for the life of the loan but you’ll likely see a lower interest rate than with the 30-year fixed option. Nerd wallet reported that the pros associated with this loan type include a shorter path to full ownership and faster equity while the major con would be a larger monthly payment.



If you’ve chosen an adjustable-rate mortgage, it’s important to realize that the rates could be lower than a fixed rate now, but there is a high likelihood that rates will increase as your loan progresses. For example, you decide on a 5/1 ARM for 15 years, the first number is the length of time, in years, that you will hold the initial rate and the second number is how frequently an increase could occur for the remainder of the loan. This means that for the first 5 years you will hold the rate you initially locked in and then every year for the next 10 years, your rate will increase. The 5/1 ARM is common along with the 5/5 ARM which means that the rate will hold for the first 5 years and adjust every five years after that. Ultimately, this loan type benefits people that don’t want to have a mortgage long or if they think interest rates are going to go down. With the interest rates so low right now, I would not suggest an ARM because the market won't be like this forever and ARM rates follow the market. 


Next, we have an FHA loan which stands for the Federal Housing Administration because the rates are insured by the federal government. This is a loan type allows buyers to put down as low as 3.5% to secure the home and the major benefits with this loan type is that you don’t have to put much money down, you’re likely to qualify with a lower credit score, and you can have a higher debt to income ratio. This loan type is not only for first time home buyers, this program can actually be used for any buyer but the goal is that you will only need to use this program on your first home as it sets up the buyer to succeed. The major con associated with FHA loans is that you will have to pay PMI until you reach 20% equity.


A VA or Veterans Affairs loan is backed by the Department of Veteran’s Affairs and allows veterans to purchase a home with no money down and no private mortgage insurance. You will need to work with an approved VA mortgage lender but this is a great program to allow veterans to get on their feet and purchase a home once they leave active duty. The borrower will have to pay a VA funding fee but which is written into your monthly payments. 


A USDA loan is backed by the Department of Agriculture and it is a program that allows income-qualified individuals to purchase a home in rural and some suburban areas for no money down. There are income limits and value caps within this program but if you qualify and purchase a fixer-upper, there are home improvement loans and grants available to assist. 


The two last mortgage types are not often used which include jumbo loans and interest-only mortgages. A jumbo mortgage would be for a buyer who is purchasing a large dollar value home. This loan type has fixed and adjustable-rate options, required at least 10% down, and required a credit score of over 700. In 2021, the jumbo loan limit was increased to $548,240, as reported by Nerd Wallet (https://www.nerdwallet.com/article/mortgages/jumbo-loan-limits). And interest only loans are for someone who can put down more than 10% on the home, have a credit score over 700, and a low debt-to-income ratio. This loan type usually has an adjustable rate and is for 10 years. Throughout those 10 years, you will only pay interest on the loan, no principal. Once the 10 years are up, you will make amortized payments to pay off the principal. This loan type is best for an individual that has a high monthly cash flow, increasing income, or large cash savings. 


When you initiate your conversation with us, it’s important to know what loan type you’re interested in seeing numbers for. Much of your decision will be made by your credit score, income, debt-to-income ratio, and down payment, but it’s crucial for you to feel comfortable in your choice so it’s important to do the homework.


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AFFECTING THE MORTGAGE INDUSTRY? NEW LAWS 2022

By DEANA M. DEVEREAUX • June 21, 2022
It’s important to stay up to date on the ever-changing landscape that is the mortgage industry. It’s possible that the newest laws passed by congress, Fannie Mae, and Freddie Mac could affect those looking to get a mortgage, or refinance in the coming months. We’ve put together all the latest on the newest and upcoming mortgage laws affecting the industry. Additional due diligence for condo buyers If you’re looking at buying a condo that is 20 years or older, you may have to jump through a few extra hoops before signing the final loan docs. Conventional loan buyers will have to go through an additional due diligence process that includes obtaining answers on safety, soundness, structural integrity, and habitability of condos from the condo association before the loan can be processed. If you’re looking at a condo this spring, it’s best to get prepared now. While this extra due diligence step is a pain, it’s in your and your lenders best interest. This extra due diligence step was born out of the devastation of recent condo building collapses in the U.S. New fees for vacation home financing and high-balance loans If you thought 2022 was the year for. A second home, vacation home or jumbo upgrade, it may still be but you’re going to be looking at additional fees. Upfront fees for these types of loans are expected to increase between 1.125 percent to 3.875 percent. Fannie Mae and Freddie Mac explain that these increases in the second home market are to keep first-time homeownership rates low and facilitate equitable and affordable housing. You can still buy down these increases with points just like you can buy down an interest rate. This rate increase comes as we saw the housing market skyrocket and borrowers take on additional debt to compete in this hot market. Self-employed borrowers rejoice – loosened regulations Thanks to the pandemic, the number of freelanced workers has increased. The good news keeps on coming because lending criteria has relaxed for self-employed borrowers. The COVID-19 pandemic saw an increase in requirements for self-employed borrowers. If you’re a freelancer, you no longer need to provide year-to-date profit and loss statements and three months of bank statements. We’re back to the good old days of using tax returns to show income! If you’ve been waiting to buy a home because you’re a self-employed borrower, now is the time! In the past, borrowers had to show creditworthiness through any number of on time loan payments including credit cards, first mortgage loans, car loans and more. The strict creditworthiness requirement affected many buyers that did not have credit cards, mortgage loans, or car loans. Now your mortgage loan provider can use a verification tool to check bank deposits for on-time rental payments, and other creditworthiness information. Say goodbye to mounds and mounds of paperwork proving you pay your loans on time!

DO YOU REALLY NEED A REAL ESTATE AGENT?

By Deana M. Devereaux • June 14, 2022
 The real estate agent that you’re working with to buy your home should be your advocate. You want to ensure that they are aware of all risks and benefits associated with the property you’re looking to buy. There is a major benefit in having a good real estate agent because they can ultimately help you make money on the purchase of your home in the long run. If your agent shows you homes where you could add an additional bedroom or bathroom or they show a property where you could finish the basement, they’re helping you gain equity in the property. On the flip side of that, if they don't understand your search area and they show you a home that is overpriced and they suggest that you go in over the true value of that home, you’re losing money on the transaction. It’s important to work with someone that you trust to guide you through the process and help you make decisions that will help your bottom line, not hurt it.

THE INS AND OUTS OF FINANCING A 2ND HOME

By DEANA M. DEVEREAUX • May 23, 2022
Step 1 – Decide How You’re Going to Use the Second Home Your down payment requirements and loan types will differ depending on what you plan to use your second property for. For example, do you plan to use it as a vacation home, secondary residence, or full-time rental property? A vacation home or secondary residence may qualify for a conventional home loan. When qualifying for a second conventional loan, the process is much like your first mortgage except you will be required to put down 10 percent. If you are purchasing the home to use as an investment property or full-time rental, you won’t qualify for certain loan types such as FHA or VA loans. You will also be required to put down a larger down payment than a vacation home or secondary residence. In addition, you may have to meet stricter debt to income ration requirements. All hope is not lost though! You can still qualify for a vacation home or secondary residence if you plan to rent the home out on apps like Airbnb. Typically, you must occupy the home for some portion of the year, and the home must be a one-unit home that can be used year-round. We can help you figure out what loan type you qualify for. Step 2 – Save For Your Down Payment There are multiple ways to complete this step. You can save the traditional way and put away a portion of your paycheck every month. You can also use the equity in your primary home to fund the down payment of your second home. There are multiple programs available such as: · Cash out refinance: A cash out refinance allows borrowers to borrow up to 80% of their home’s current value. The only caveat with this option is that your primary home’s monthly payment will increase. · HELOC: A HELOC, otherwise known as a Home Equity Li ne of Credit. This avenue differs from a cash out refinance because you are not refinancing your primary home’s mortgage. This is a good option if current interest rates are higher than your primary home mortgage interest rate. The last thing you want to do is refinance to a higher interest rate!
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