Here’s another question I get all the time: Chris what’s a (insert) loan all about?
CONVENTIONAL OR CONFORMING – This is a loan which would conform to the underwriting guidelines or either Fannie Mae (www.fanniemae.com) or Freddie Mac (https://www.freddiemac.com/). These are what most people will obtain as a mortgage but there are some limits on them. The big one is that these loans can not be for more than a certain amount which is specified each year by location. I just looked up the 2015 conforming loan limit for Palm Beach County and it’s $417,000. Typically Buyers will want to put down 20% of the purchase price to avoid the mortgage insurance premium and thus the maximum purchase price would be 417/0.8=521,250 but if the qualify lesser down payment options (as little as a 3%) then the maximum purchase price would be 417/0.97=429,897.
Conventional – 3% Down Payment. If at least one of the buyers is a first time Homebuyer, and has a FICO as low as 620 they may be able to buy a home with only 3% down payment. The definition of a First Time Homebuyer is a buyer that has not owned a home is the past 3 years, which makes this program open to most buyers.
There is now a 4 year waiting period for a Buyer who has a short sale on their record before they can qualify for a conforming loan. Unless there were “extenuating circumstances” and then the borrower may be eligable after only 2 years. Extenuating circumstances are nonrecurring events that are beyond the borrower’s control that result in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations. In many cases, extenuating circumstances are required for a creditor to have agreed to the preforeclosure sale or deed-in-lieu of foreclosure; therefore, many borrowers will be eligible under the shorter waiting period.
JUMBO – A jumbo loan is one for more than the conforming loan limit for the specific area. Again, in 2015 in Palm Beach County this is 417k and thus if you need to borrow more than this then the loan is a considered a Jumbo. Welcome to the big leagues and get ready for some close scrutiny of your application. These loans are not purchased by the governemnt so the under writing requirements vary.
FHA – 3.5% Down Payment
For a buyer purchasing a $250,000 home, the borrower will save about $100 per month due to reduced MIP in effect as of today!
By the way, FHA rates are also typically lower than conventional loans with 3-5% down payment.
Also, a buyer with a prior short sale can typically buy a home after 3 years using FHA Financing.
VA – NO Down Payment
Don’t forget to ask your buyers if they are a Veteran. If they are an eligible Veteran, they may be able to purchase a home with no down payment.
