Young_and_Reckless
Is better than you...
Brehs,
Despite my username, I'm actually a tenured loan officer practicing for over 10+ years. I'm a top producer in my organization, and practice in over 13 states. I thought I'd take the time to breakdown and shed some light on my industry, because if you're not purchasing real estate now, inevitably you'll be doing so in the future. Hopefully, this will give you a little bit more knowledge, on what to expect when making one of life's biggest purchases.
First -
There are 3 maintypes of mortgage financing, conventional, FHA, and non-conforming. Non-conforming for the most part deals with jumbo loans, and portfolio products. Depending on your state, the max conforming loan amount is $417k, and for the most part, FHA has a cap of $262k. Again, this differs from state to state, and county to county . If you're looking to borrow more, you can use the following link to see what limits your state/county have, which can be found here: https://entp.hud.gov/idapp/html/hicostlook.cfm
Now, there are other types of financing, such as VA, USDA, portfolio, etc., but my main focus here will be to try and explain conforming and FHA, since this will pertain to most of the users here (realistically).
A conforming loan (or all loans for that matter) is underwritten (reviewed) through an automated underwriting system or AUS, by Fannie Mae or Freddie Mac. Basically, this AUS gives you an approval or denial based on variables such as credit score, down payment, assets, etc. Once your loan has an AUS approval, there are certain conditions you must meet, such as providing documentation supporting income, assets, and citizenship. This is one part of the approval , or the credit file, the other part of a mortgage approval, is the property file. The property file requires a full RE appraisal to be conducted by a licensed real estate appraiser, who is selected by the lender.
A conforming loan typically requires a minimum credit score of 680, and at least 5% down. Now, you can get away with 3% down, but your credit score has to be above 700 typically, not because of the mortgage, but because of the PMI. PMI is private mortgage insurance, and is basically a (per month) cost added onto the loan because you don't have 20% down. This insurance protects the lender, and only the lender because of the risk associated with the low down payment. This added cost (monthly PMI payment) is based on a factor, multiplied by the loan amount. The factor is determined by credit score, down payment, and where you're purchasing. This added cost, or PMI, does go away once you reach 78% loan to value by way of paying off your loan, or your home appraising for more in the future. Have I lost you yet?
Continuing on, a conforming loan is one that you would take out on a single family residence, condo, town home, investment property, etc. it's your basic mortgage that you take out in most instances. Keep in mind that when you put less than 20% down, you're debt to income ratio is capped at 45%. Basically, your total monthly debts that show up on your credit report (car payment, student loans, credit cards), plus the proposed housing payment PITI, over your gross monthly income. if you put 20% down, and your credit score is excellent, this DTI requirement allows you to go to 50% max fyi.
An FHA loan is basically a government backed loan that has a little more flexibility -given that it's backed by the government. The minimum down payment is 3.5% and your debt to income ratio can go as high as 56%, if your credit scores are excellent. You still have to prove income and assets, etc., but the rates are a little lower than conforming loans because of government influence. However, there are certain caveats when pursuing an FHA loan. First, you're required to pay a 1.75% mortgage insurance premium (one time fee), which can be rolled into the loan. And the monthly mortgage insurance, is often more expensive the a conforming loan, on a monthly basis. Other caveats -there is a cap on how much you can borrow, the seller has to agree to sell their home via FHA, you need pest inspections in states such as FL and TX where termites are prevalent, and only primary residences are allowed
. One important caveat that just rolled out with FHA, and begins this April is the inability to waive the monthly mortgage insurance payment, even when you reach 20+% equity. So for 30 years, you'll have this mortgage insurance payment, it will never cease on any FHA loan taken out after this April.
I'm sure there will be a flood of question, that I'll be happy to answer, but please no
I'm just trying to help the Coli fam out.
Despite my username, I'm actually a tenured loan officer practicing for over 10+ years. I'm a top producer in my organization, and practice in over 13 states. I thought I'd take the time to breakdown and shed some light on my industry, because if you're not purchasing real estate now, inevitably you'll be doing so in the future. Hopefully, this will give you a little bit more knowledge, on what to expect when making one of life's biggest purchases.
First -
There are 3 maintypes of mortgage financing, conventional, FHA, and non-conforming. Non-conforming for the most part deals with jumbo loans, and portfolio products. Depending on your state, the max conforming loan amount is $417k, and for the most part, FHA has a cap of $262k. Again, this differs from state to state, and county to county . If you're looking to borrow more, you can use the following link to see what limits your state/county have, which can be found here: https://entp.hud.gov/idapp/html/hicostlook.cfm
Now, there are other types of financing, such as VA, USDA, portfolio, etc., but my main focus here will be to try and explain conforming and FHA, since this will pertain to most of the users here (realistically).
A conforming loan (or all loans for that matter) is underwritten (reviewed) through an automated underwriting system or AUS, by Fannie Mae or Freddie Mac. Basically, this AUS gives you an approval or denial based on variables such as credit score, down payment, assets, etc. Once your loan has an AUS approval, there are certain conditions you must meet, such as providing documentation supporting income, assets, and citizenship. This is one part of the approval , or the credit file, the other part of a mortgage approval, is the property file. The property file requires a full RE appraisal to be conducted by a licensed real estate appraiser, who is selected by the lender.
A conforming loan typically requires a minimum credit score of 680, and at least 5% down. Now, you can get away with 3% down, but your credit score has to be above 700 typically, not because of the mortgage, but because of the PMI. PMI is private mortgage insurance, and is basically a (per month) cost added onto the loan because you don't have 20% down. This insurance protects the lender, and only the lender because of the risk associated with the low down payment. This added cost (monthly PMI payment) is based on a factor, multiplied by the loan amount. The factor is determined by credit score, down payment, and where you're purchasing. This added cost, or PMI, does go away once you reach 78% loan to value by way of paying off your loan, or your home appraising for more in the future. Have I lost you yet?
Continuing on, a conforming loan is one that you would take out on a single family residence, condo, town home, investment property, etc. it's your basic mortgage that you take out in most instances. Keep in mind that when you put less than 20% down, you're debt to income ratio is capped at 45%. Basically, your total monthly debts that show up on your credit report (car payment, student loans, credit cards), plus the proposed housing payment PITI, over your gross monthly income. if you put 20% down, and your credit score is excellent, this DTI requirement allows you to go to 50% max fyi.
An FHA loan is basically a government backed loan that has a little more flexibility -given that it's backed by the government. The minimum down payment is 3.5% and your debt to income ratio can go as high as 56%, if your credit scores are excellent. You still have to prove income and assets, etc., but the rates are a little lower than conforming loans because of government influence. However, there are certain caveats when pursuing an FHA loan. First, you're required to pay a 1.75% mortgage insurance premium (one time fee), which can be rolled into the loan. And the monthly mortgage insurance, is often more expensive the a conforming loan, on a monthly basis. Other caveats -there is a cap on how much you can borrow, the seller has to agree to sell their home via FHA, you need pest inspections in states such as FL and TX where termites are prevalent, and only primary residences are allowed
. One important caveat that just rolled out with FHA, and begins this April is the inability to waive the monthly mortgage insurance payment, even when you reach 20+% equity. So for 30 years, you'll have this mortgage insurance payment, it will never cease on any FHA loan taken out after this April.I'm sure there will be a flood of question, that I'll be happy to answer, but please no
I'm just trying to help the Coli fam out.
