LOAN TYPES

Conventional Financing
FHA/ VA Financing
Homepath Financing
Private Lending (Hard Money Loans)
NSP Programs (Neighborhood Stabilization Programs)
USDA Grant Programs
Nevada Grant Programs

Lending options are changing almost as quickly as market conditions and much of it is to a buyer’s advantage if they are aligned with an Horizon Professional who can pair them up with the most qualified professional who can give competent and informed advice to help you meet your goal

Conventional Financing

Most often, a conventional home mortgage is a general term used to describe a home mortgage acquired with a sizable down payment (20 percent) and is not insured (such as those that require private mortgage insurance) or guaranteed by a government-sponsored entity.

A conventional loan is a lender agreement that's not guaranteed or insured by the federal government under the Veterans Administration (VA) the Federal Housing Administration (FHA), or the Rural Housing Service (RHS) of the U.S. Department of Agriculture. Although a conventional loan is not insured or guaranteed by the government, it can still follow the guidelines of government sponsored enterprises (GSE's) such as Fannie Mae or Freddie Mac as both Fannie Mae and Freddie Mac are stockholder-owned corporations and are not part of the federal government.

Conventional Loan History

At one point in the United States, conventional loans were the only mortgage loans available and they were all issued by local lenders such as banks, savings and loans, and credit unions. These private lenders kept and serviced these loans in their own portfolio until they were either paid in full or foreclosed on.

In the late 1930's, a secondary market was created which allowed these local lenders to sell their loans, getting the full payment much more quickly. Then, the organizations that purchased the loans owned the agreement and collected payments from the borrower. Today it is very common for lenders to sell their loans on the secondary market.

Types of Conventional Loans

Conventional loans may be "conforming" and "non-conforming". Conforming loans follow the terms and conditions set by Fannie Mae and Freddie Mac. The 2009 conforming loan limits remain at the limits set in 2006, 2007 and 2008. These guidelines put the maximum price for a first mortgage at $417,000 for a single-family dwelling. If the purchase is made outside of the 48 contiguous United States (in Guam, the Virgin Islands, Hawaii, or Alaska), or the dwelling is for a two-family, three-family, or four-family configuration, larger values apply before the loan is no longer considered a conventional loan.

Nonconforming loans don't meet Fannie Mae or Freddie Mac qualifications, but that are still considered conventional. Jumbo loans are one example of a conventional loan that does not meet Fannie Mae or Freddie Mac guidelines. A jumbo loan is a loan with a dollar value above the maximum loan amount established by Fannie or Freddie. Jumbo loans usually have a higher interest rate.

Conventional loans can be fixed rate mortgages, adjustable rate mortgages, balloon mortgages, or hybrid loans. Almost any type of loan that you take, if not issued by a government entity, is considered a conventional loan.

FHA/ VA Financing

Answering the question of what is an FHA loan can be very important to first time homebuyers, nontraditional buyers, or those buyers with poor credit seeking to buy a home. The Federal Housing Administration (FHA) insures mortgages, making it easier for families that would normally be excluded from purchasing a home to purchase a home. FHA helps to make home buying during a recession easier for people. It also has programs to finance military housing and homes for veterans.

Common FHA Loans

The fixed rate mortgage is the most common FHA program. The FHA fixed mortgage is open to anyone using the property as a primary residence. FHA will not finance investors. The fixed mortgage program protects lenders against buyer default. A lender underwrites a loan, requiring the buyer to meet certain criteria defined by FHA. If the borrower can meet these requirements, the FHA insures the loan that the lender issued.

Benefits of an FHA Loan

FHA fixed mortgage loans often require lower down payments than conventional mortgages – as low as 3 percent, compared to as much as 10 or 20 percent for conventional mortgages. This means you can borrow as much as 97% of the cost of the property.

If there is enough equity in the home at the time of purchase, the FHA will also allow the borrower to finance many of the closing costs associated with purchasing the home. Closing costs can range from 2 to 10 percent of the purchase price of the home, depending on the lender, so having the option to defer these payments and pay them off over time makes it easier for buyers to purchase homes.

Lender fees are also limited in FHA fixed mortgage loans. For example, the loan origination fee- generally one of the largest fees associated with a mortgage- is capped. If a borrower selects an FHA loan, the lender may not charge more than 1 percent of the amount of mortgage for the origination fee.

Who Can Use an FHA Loan?

HUD sets limits on the maximum amount you can borrow under an FHA loan. These limits vary by state and can be found at FHA Loan.com. The limits ensure that FHA loan programs serve families with low to moderate incomes. Borrowers must also meet certain other qualifications. For example, borrowers must have a maximum of 29 percent debt to income ratio to qualify for an FHA loan. This figure is calculated by dividing the total amount you will pay on your mortgage each month by your gross monthly household income. If the result is larger than 29 percent, you cannot qualify for an FHA loan.

FHA loans also require that the borrower pay mortgage insurance, since most borrowers put down a low down payment. FHA loans charge .5 percent of the total loan amount each year for mortgage insurance. Once you have established enough equity in the home that the loan value is 78 percent or less of the total worth of the home, as long as you have paid the premiums for five years, you will no longer need to pay this additional insurance.

Qualifying for an FHA Home Loan

Once you have researched what is an FHA loan and determined it is right for you, you can apply for an FHA loan through an FHA approved lending institution.

HomePath® Financing

This special financing is available on Fannie Mae homes with the following logo:



The benefits include:

• Low down payment and flexible mortgage terms (fixed-rate, adjustable-rate, or interest-only)
• You may qualify even if your credit is less than perfect
• Available to both owner occupiers and investors
• Down payment (at least 3 percent) can be funded by your own savings; a gift; a grant; or a loan from a nonprofit organization, state or local government, or employer
• No mortgage insurance*
• No appraisal fees
• Also eligible for HomePath Renovation Mortgage (see details below)
• HomePath Mortgage financing is available from a variety of lenders - both local and national.
  
  

HomePath® Renovation Mortgage Financing
This special financing is available on Fannie Mae homes with the following logo:



Available only on homes you make your primary residence and offers these benefits:

• Financing to fund both your purchase and light renovation
• Low down payment and flexible mortgage terms (fixed-rate or adjustable-rate)
• Down payment (at least 3 percent) can be funded by your own savings; a gift; a grant; or a loan from a nonprofit, state or local government, or employer
• No mortgage insurance*
• HomePath Renovation Mortgage financing is available from several lenders.

Consult a Horizon Professional for an extensive list of homes that are Homepath eligible.
The info above is adapted from the following site – click here for more info.

Private Lending (Hard Money Loans)

A hard money loan is a specific type of asset-based loan financing through which a borrower receives funds secured by the value of a parcel of real estate. Hard money loans are typically issued at much higher interest rates than conventional commercial or residential property loans and are almost never issued by a commercial bank or other deposit institution. Hard money is similar to a bridge loan, which usually has similar criteria for lending as well as cost to the borrowers. The primary difference is that a bridge loan often refers to a commercial property or investment property that may be in transition and does not yet qualify for traditional financing, whereas hard money often refers to not only an asset-based loan with a high interest rate, but possibly a distressed financial situation, such as arrears on the existing mortgage, or where bankruptcy and foreclosure proceedings are occurring.

Many hard money mortgages are made by private investors, generally in their local areas. Usually the credit score of the borrower is not important, as the loan is secured by the value of the collateral property. Typically, the biggest loan one can expect would be between 65% and 70% of the property value. That is, if the property is worth $100,000, the lender would advance $65,000–70,000 against it. This low LTV (loan to value) provides added security for the lender, in case the borrower does not pay and they have to foreclose on the property.

At Horizon, we have recently met with private money vendors, who have made commitments to fund 50% LTV loans with rates very close to going rate. The qualifications are also asset driven as well as having proof of the ability to pay back the loan. These are available with 3 to 5 year loan terms.

NSP – Neighborhood Stabilization Program Grants

The Neighborhood Stabilization Program (NSP) was established for the purpose of stabilizing communities that have suffered from foreclosures and abandonment. Through the purchase and redevelopment of foreclosed and abandoned homes and residential properties, the goal of the program is being realized. NSP1, a term that references the NSP funds authorized under Division B, Title III of the Housing and Economic Recovery Act (HERA) of 2008, provides grants to all states and selected local governments on a formula basis. NSP2, a term that references the NSP funds authorized under the American Recovery and Reinvestment Act (the Recovery Act) of 2009, provides grants to states, local governments, nonprofits and a consortium of nonprofit entities on a competitive basis. The Recovery Act also authorized HUD to establish NSP-TA, a $50 million allocation made available to national and local technical assistance providers to support NSP grantees.

For more information click here.

USDA Grant Programs

There are certain criteria used to determine eligibility for certain USDA home loan programs. In order to be eligible for many USDA loans, household income must meet certain guidelines. Also, the home to be purchased must be located in an eligible rural area as defined by USDA.

To learn more about a USDA home loan program, click on the link below and select one of USDA's home loan programs.

USDA website - click here.

While at the USDA website:
To determine if a property is located in an eligible rural area, click on the Property Eligibility link on the left side of the screen and select a Rural Development program. When you select a Rural Development program, you will be directed to the appropriate property eligibility screen for the Rural Development loan program you selected.

To determine income eligibility of an applicant/household, click on the Income Eligibility link on the left side of the screen and select a Rural Development program. When you select a Rural Development program, you will be directed to the appropriate income eligibility screen for the Rural Development loan program you selected. 

For more information click here - USDA website.

Nevada and Arizona Grant Programs

To access the latest in Nevada and Arizona Grant program funding from the Secretary of HUD, click the links below

Nevada ( http://www.hud.gov/local/nv/news/localnews.cfm )

Arizona ( http://www.hud.gov/local/az/news/localnews.cfm )

Other Great Links:

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