Conventional Home Loans Vs. VA Home Loans & FHA Home Loans
Friday, October 19, 2012
CONVENTIONAL HOME LOANS Vs. VA Home Loans & FHA Home Loans
Anyone following the mortgage market in Roseville knows that financing can be somewhat difficult these days, that is, unless you have excellent credit. Even though reserved lenders are seeking shelter from the subprime mortgage fallout, they are still offering home mortgages at low home loan rates. Many people are currently taking advantage of some of the lowest rates in decades. Existing-home sales seasonally reached an adjusted annual rate of 5 million units in July of 2008, as the National Association of Realtors (NAR) reported. The home mortgage market cannot be declared dead quite yet even though their report also indicates that is down from 5.76 million a year ago. Underwriting standards have been tightened by Roseville home lenders in an effort to make it tougher to get a conventional fixed-rate or adjustable-rate loan. Federal housing loan programs have gotten sucked into the drag of the subprime mortgage crisis, and are currently undergoing limited reform. FHA loans, which are highly favored by first-time home buyers, will be slightly more difficult to obtain due to the passing of a federal housing bill. VA loans offered by the Department of Veteran Affairs, are possibly the most attractive of the options, and are restricted to buyers who meet certain eligibility guidelines, such as satisfactory military service. Choosing a mortgage suited to your needs can be confusing, especially if you qualify for more than one kind. Explore these three loan types before you decide to apply for a home loan.
Types of mortgages
1. Conventional loans
How they work: The federal government bailout of Freddie Mac and Fannie Mae may affect both entities' underwriting standards going forward, but amendments have yet to be made. "The dominant number of loans made in the conventional market use Fannie Mae and Freddie Mac guidelines for conforming loans," says John Councilman, federal housing chairman for The National Association of Mortgage Brokers in McLean, Va. Conventional loans conform if the loan amount is $417,000 or less for a single family home in Roseville. In more expensive real estate markets of the country, conforming loan limits may be higher. For example, in states such as Alaska and Hawaii, it's $625,500.
There are also established guidelines for borrower credit scores, income requirements and minimum down payments. For example, most conventional loans require somewhere between 5 percent and 20 percent down.
"Right now those guidelines are changing frequently but they should have at least a 620 credit score," Councilman says. "Anything below a 740 credit score and they (lenders) are going to start adding fees which can be quite sizable, in the several-percent range, as borrowers' credit scores drop compared to loan-to-value (LTV)."
Conventional loans can be nonconforming or conforming. Loans that exceed the lending limits set by Freddie Mac and Fannie Mae are call jumbo mortgages or nonconforming home loans. Most conventional home loans have either adjustable or fixed interest rates. Fixed interest rate mortgages typically have a term of 15 to 30 years. A shorter-term loan generally results in a lower interest rate. Adjustable-rate mortgages, or ARMs, fluctuate in relation to the rate of a standard financial index, such as the LIBOR. Monthly payments can go up or down in accordance to this market index.
Cost: Origination fees, mortgage insurance, down payments, points and appraisal fees could mean the borrower must have a sizable sum of money out-of-pocket at the time of closing. There is the option to roll over some of these costs into their mortgage loan amount, but may result in a higher interest rate.
Pros: Conventional mortgages in Roseville typically pose fewer bureaucratic obstacles than FHA or VA mortgages, which may take longer to process because of a stricter loan processing system. And because these home loans generally require higher down payments than the others, home equity can build faster.
Cons: Excellent credit is necessary to qualify for the best interest rates in Roseville. Many Roseville home mortgage lenders require higher down payments than for government-insured loans. In markets on the decline such as this one, borrowers may only qualify for up to 90 percent loan-to-value and may have to pay the difference out-of-pocket. Some home loan lenders may require a down payment as much as 20 percent, especially for condominiums in real estate markets where it may be difficult to obtain mortgage insurance.
Who they're good for: For borrowers with excellent credit who can make a down payment of 5 percent or more, conventional home mortgages may be the ideal option for home buyers in Roseville.