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LOAN TYPES
Mortgage Types
CONVENTIONAL MORTGAGES
Conventional Mortgages - are loans that are not insured or guaranteed by any government agency. They make up about two-thirds of all residential home mortgages in the United States. Conventional loans can further be broken down into a few types:
Conforming loans – are those that meet guidelines set by FNMA and Freddie Mac. They also conform to the loan limits that are set by the FHFA (Federal Housing Finance Administration). These conforming mortgages are not backed or insured by government agencies such as the FHA or VA, but FNMA and Freddie Mac are government-sponsored enterprises. The government buys these conforming mortgages from the lenders and banks and sell them to investors. This makes mortgages more widely available to the banks and therefore to the public. About half of all conventional mortgages are conforming mortgages.
Non-conforming loans - are those that do not conform to the government-sponsored enterprises (FNMA & Freddie Mac), but they are conventional loans. These consists of Jumbo loans that are higher than the conforming loan limits.
The third part of conventional loans are considered “sub-prime” or the newly labeled Non-QM (qualified mortgage). These consist of higher risk mortgages due to lower scores or higher debt ratio’s and typically carry higher interest rates and fees as a result. They are not government backed loans, but the government has created special rules covering the sale of these loans.
● Down payment - Yes ● Mortgage Insurance - Yes over 80% LTV
● Credit - Higher Credit scores ● Type of Property - No Restrictions
● Insured - No
FHA MORTGAGES
FHA Mortgages – these are guaranteed by the Federal Housing Administration and tend to be more aggressive, in that they have more lenient guidelines with regard to credit scores and ratings, and allow for a higher LTV (loan to value), or in other words less down payment money. The interest rates tend to be lower as well, however, the FHA mortgages carry a monthly insurance premium and an up-front insurance premium, which might end up making them more expensive even though they could have a lower interest rate. All this insurance guarantees the bank or lender will get paid their money even if the homeowner defaults and ends up in foreclosure. The FHA pays the bank or lender for their losses. Without the guarantee by the FHA these loans would be considered too risky and would not be readily available to the public. Some additional advantages with the FHA products are lower closing costs (they can be covered up to 6% of the sale price by the seller) and/or the buyers can get extra cash out for home repairs with an FHA 203k program.
● Down payment - Yes ● Mortgage Insurance - Yes
● Lower Credit scores ● Type of Property - Primary only
● Govt. Insured - Yes
VA MORTGAGES
VA Mortgages – are those guaranteed by the United States Department of Veteran Affairs (VA). They are issued by banks and lenders who are protected by the department in a similar fashion as the FHA mortgages above. It is available for veterans, active service members, and widowed military spouses. It does have a funding fee which is like the FHA up-front insurance premium described above, but it does not have a monthly insurance premium. VA eligible borrowers can finance up to 100% and there are no minimum credit score requirements. Both are attractive perks of the program. About 8% of mortgages in the United States are made up of VA mortgages.
● Down payment - No ● Mortgage Insurance - No
● Credit - Lower Credit scores ●Type of Property - Primary only
● Govt. Insured - Yes
USDA MORTGAGES
USDA Mortgages – are designed and geared towards rural and suburban properties that qualify, and they do not require a down payment. These mortgages are issued through the USDA loan program, also known as the USDA Rural Development Guaranteed Housing Loan Program, by the United States Department of Agriculture. It is designed to improve the economy and quality of life in rural America. There are low rate options, low to no down payment options, low income participants may qualify, which varies by region, and grants may be available for some home improvements. We encourage you to call and learn more about USDA mortgages.
● Down payment - Yes ● Mortgage Insurance - Yes
● Credit - Lower Credit scores ● Type of Property - Primary only
● Govt. Insured - Yes
NEWMARK HOME MORTGAGE
OUR “PREQUAL-APPROVAL” LETTER
In the mortgage industry a prequalification and a pre-approval are often used interchangeably and
essentially mean the same thing……A Pre-Qualification(prequal) or Pre-Approval is a preliminary opinion
by a mortgage loan originator that is based on standard information provided by the buyer/borrower at
the early stage of the home buying process that reveals how much of a loan or what value of a home
you qualify for. And it is usually provided in writing to the realtor at their request.
Some originators may ask for a fraction of the required information and most likely don’t verify any of it
at the early stage. Then they pull a credit report and estimate how much you can borrower and/or how
much of a home you can purchase. Their haphazard prequal/pre-approval process is often geared
towards trying to satisfy the realtor as fast as possible instead of focusing on if the program truly works
for you or not. This often leads to a Prequal/pre-approval letter that may not be worth the paper that
its written on. Usually this approach proves to be a big waste of time resulting in some unfortunate
outcomes, unhappy buyers, frustrated realtors, not to mention angry sellers!
At NewMark Home Mortgage we take this Pre-Qual/Pre-Approval step a little more serious. We want
to see these preliminary inquiries come to fruition and we want to see you get that house of your
dreams!
We not only take the basic information that everyone else does, but we insist on having you submit all
the relevant documentation that is needed so we can truly send you off to house-shop with confidence!
Our experienced loan originators thoroughly review everything provided and then we run your data
through an automated underwriting system. The approval we get is the same feedback that the actual
underwriters use as a guideline when reviewing and approving your file.
Not until we’ve accomplished the above do we then present you with what we call our PreQualApproval
letter that can be proudly presented to your realtors, attorneys, sellers, etc.
Even though our approach might take a little more time and effort, you’ll appreciate it when your offer
is accepted and you are under contract. That is when all that preliminary work pays off…… It allows us
to strive to get the mortgage commitment from underwriting before your contract is even out of the
three-day attorney review, before the home inspection is performed, and/or before any appraisal is
done on the house!!!
NewMark Home Mortgage’s PreQualApproval process is a major first step in the right direction and just
one of the reasons so many realtors enjoy working with us and why we have so many happy clients that
continue to use our services time and time again.
Happy House Shopping !!!!