Frequently Asked Mortgage Questions

What Home Loan FAQs do you need to know?

FAQ’s About FHA Loans

FHA Loans-An FHA loan is a mortgage that is insured by the Federal Housing Administration. Borrowers pay for mortgage insurance, which protects the lender from a loss if the borrower defaults on the loan.

A minimum credit score for the FHA loan depends on the type of loan the borrower needs. To get a mortgage with a down payment as low as 3.5%, the borrower needs a credit score of 580 or higher. If the borrower has a credit score between 500 and 579 then they usually need to make a down payment of at least 10%. Borrowers with credit scores under 500 generally are ineligible for FHA loans. If a borrower meets all of the requirements the FHA will make allowances under certain circumstances for applicants who have what it called “nontraditional credit history or insufficient credit”. Please ask your lending specialist for additional information to see if you qualify.

The FHA allows home sellers, builders and lenders to pay some of the borrower’s closing costs, such as an appraisal, credit report or title expenses. For example, a builder might offer to pay closing costs as an incentive for the borrower to buy a new home. You want to be sure to check rates as most lenders typically charge a higher interest rate on the loan if they agree to pay closing costs. Borrowers can compare loan estimates from competing lenders to figure out which option makes the most sense.

There are two mortgage insurance premiums that are required on all FHA loans: The upfront premium is 1.75% of the loan amount. This upfront insurance premium is paid when the borrower gets the loan and can be financed as part of the loan amount.

The 2nd insurance is called the annual premium, but it is paid monthly, not annually. It varies based on the length of the loan, the amount borrowed and the initial LTV ratio.

Annual Premiums for FHA Loans

  • 15-year loan, down payment (or equity) of less than 10%: 0.7%
  • 15-year loan, down payment (or equity) of less than 10%: 0.7%
  • 15-year loan, down payment (or equity) of 10% or more: 0.45%
  • 30-year loan, down payment (or equity) of less than 5%: 0.85%
  • 30-year loan, down payment (or equity) of 5% or more: 0.8%

The FHA has a special loan called a 203(k) for borrowers who need extra cash to make repairs to their homes. The principal advantage of this type of loan is that the loan amounts is based not on the current appraised value of the home but on the projected value after the repairs are completed. The “streamlined” 203(k) allows the borrower to finance up to $35,000 in nonstructural repairs, such as painting and replacing cabinets or fixtures.

Loan servicers can offer some relief to borrowers who have an FHA-insured loan, or have suffered a serious financial hardship and are struggling to make their payments. It might be a temporary period of forbearance, a loan modification that would lower the interest rate or extend the payback period, or a deferral of part of the loan balance with 0% interest.

FAQ’s About VA Loans

VA Loans-The VA mortgage loan program was established by the United States Department of Veterans Affairs to help veterans and their families obtain home financing. The Department of Veterans Affairs does not directly originate VA loans; instead, they establish the rules for the borrowers that may qualify, dictate the terms of the mortgage loans offered and insure VA loans against default.

It is rare but the VA Home Mortgage Loan is one of the only loans where there is no down payment required.

You can still apply for a VA if you have previously-used entitlement in order to purchase another home with a VA loan if the borrower has paid off the prior loan but still owns the property, and they want to use their entitlement to purchase a second home. If the prior loan has been paid off and the property is no longer owned, they can have their entitlement restored as many times as they want. They can re-use their VA eligibility for every home purchase from the first to the last.

Also, veterans who have used a VA loan before may still have remaining entitlement to use for another VA loan. Ask your lending specialist for more details.

You would not be eligible for VA financing based only upon Active Duty for Training in the Reserves or National Guard. There is an exception with the National Guard and Reservists are eligible if they were “activated” under the authority of title 10 U.S. Code as was the case for the Iraq/Afghanistan.

No. Lenders must be VA approved. It is good to shop around as all lenders have different closing costs and other misc fees so it is good to compare rates before choosing a lender.

There is no set maximum VA loan amount; however lenders generally limit the maximum VA loan to $417,000.

FAQ’s About RENO Loans

RENO Loans-The Renovation mortgage programs allows buyers to borrow based on what the house is expected to be worth after the home rehab is completed. Homeowners can also use both programs to refinance their existing mortgage plus the renovation costs into one loan

The renovation must begin within 30 day of the closing of the loan and must be completed within the time frame established in the loan agreement. The total time for renovation must not exceed six months. The total amount of an EEM mortgage can be up to 5% of the value of the property

The Standard 203(k) loan allows for up to six mortgage payments to be included in the renovation funds to cover housing for the period when the home is uninhabitable during renovation. A streamlined 203(k), however, cannot be used if the home will not be habitable at any time during the renovation.

The appraiser is given a copy of the contractor’s bid documents to identify the repairs and remodeling to be done along with their costs. The appraiser then determines the value of the home after completion, “subject to” the improvements to be made. In some cases, up to 110% of this value may be used for loan approval purposes

FAQ’s About JUMBO Loans

JUMBO Loans-A loan is considered a JUMBO mortgage when the loan amount exceeds the conforming Loan limits by the Office of Federal Housing Enterprise Oversight (OFHEO) – the conforming loan limits is the maximum loan amount that Fannie Mae and Freddie Mac will buy.

The minimum credit score for a JUMBO loan depends on type of dwelling and loan amount.

The down payment depends on many factors including the loan amount, transaction type, property type and location of the property. The minimum down payment is 20 percent and in some cases, may exceed 30 percent

Many JUMBO mortgage lenders may allow you to take out a second mortgage for a combined loan-to-value ratio of up to 90 percent

Yes. Lenders often require a higher than usual down-payment on a jumbo loan. Typically it is an additional 5%, in an attempt to alleviate the high risk they assume by carrying the loan.

Not always. There are some ways to avoid paying PMI as it is only required for those who borrow 80% or more than the value of their home. As long as the Loan to Value (“LTV”) ratio is under 80%, PMI is optional. Many choose to split the mortgage into two parts, borrowing 80% with a JUMBO loan and borrowing the rest with a higher interest 2nd mortgage. This alleviates the need for PMI on the primary/jumbo loan.

FAQ’s About HARP Loans

HARP Loans-HARP or Home Affordable Refinancing Program Federal Housing Finance Agency to help homeowners that were underwater or almost underwater in refinancing their homes. This program is for borrowers that are current on their mortgage but struggling to make payments and unable to refinance the dropping home prices in the wake of the U.S. Housing Market Correction.

Yes. In addition to your primary residences, HARP allows you to refinance even if your property is an investment property or second home.

Yes. HARP allows mortgages on condominiums to be refinanced.

If your original loan meets the basic eligibility requirements you may be able to refinance with HARP.

HARP is unique because it enables homeowners with little to no equity in their homes to take advantage of today’s low interest rates and other refinancing benefits. HARP is only one of several refinancing options that may be available to you.

FAQ’s About HECM Loans

HECM Loans-The Home Equity Conversion Mortgage also known as the HECM’ is a type of Federal Housing Administration (FHA) insured reverse mortgage. Home Equity Conversion Mortgages allow seniors to convert the equity in their home to cash.

All proceeds beyond the amount owed belong to your spouse or estate. All the cash, interest, and other HECM finance charges must be repaid, then any remaining equity can be transferred to heirs. No debt is passed along to the estate or heirs.

You may apply for a HECM regardless of whether or not you purchased your home with an FHA-insured mortgage.

The amount you can get from your home varies by borrower and depends on the age of the youngest borrower or eligible non-borrowing spouse the current interest rate; and the lesser of appraised value or the HECM FHA mortgage limit of $625,500 or the sales price If there is more than one borrower and no eligible non-borrowing spouse, the age of the youngest borrower is used to determine the amount you can borrow.

The HECM security instrument requires the HECM mortgagor to establish a legitimate principal residence in the home. Lenders are encouraged to ensure the HECM mortgagor lives in the home prior to submitting the case binder for endorsement. Lenders may, but are not required to, obtain a letter from the HECM mortgagor stating he/she lives in the home.

The title company or settlement agent is responsible for disbursing funds in accordance with state law

Existing one-to-four unit properties where construction has been completed and the property is habitable with an issuance of certificate of occupancy or its equivalent.

The property must meet FHA minimum property requirements. This would mean that all repairs to correct major property deficiencies that would threaten the health and safety of the homeowner and/or jeopardize the soundness/security of the property must be completed by the seller prior to closing. Appraisers must complete the appraisal report as “Subject To” the completion of these repairs.

Some Examples of Major Property Deficiency:

  • No running water
  • Leaking roof
  • No primary heating source
  • Inadequate electrical system (including lighting)
  • Inoperable doors and windows (inhibited ingress and egress)
  • State or local code violations

FAQ’s About Conventional Loans

Conventional Loans-Conventional mortgages are defined as meeting the underwriting and funding criteria of Fannie Mae and Freddie Mac. Conventional mortgages are ideal for home buyers with excellent credit and can pass the general guidelines for Debt to Income Ratio and having the minimum down payment.

No In general, conventional loans are not assumable.

Most lenders require a credit score of at least 620 in order for you to be eligible for a conventional loan. In addition, the borrower debt-to-income ratio should not exceed 36%.

Primary residences, 1-4 family residences, Condos, modular homes, second homes, investment properties, planned unit development and manufactured homes are all eligible for conventional loans.

In general, interest rates are determined by the value of mortgage backed securities (MBS), which determine the interest rates that lenders offer on a given day. Interest rates change every day – sometimes more frequently, if there are market indicators calling for changes up or down. Borrowers should contact their lenders for the most current and accurate rates.

Some elements that can affect an interest rate quote for a borrower are:

  • Credit score
  • Loan Type
  • Property Type
  • Occupancy (owner occupied, investment, second home)
  • Down payment amount
  • Purpose of loan (purchase, refinance, cash-out refinance)

If a borrower puts less than 20% down, an escrow is required. Taxes and insurance are collected and placed into the escrow accounts each month. When these items come due, the lender will make the payment. Borrowers with a down payment of 20% or more can choose whether or not they wish to escrow.

FAQ’s About Streamline Loans

Streamline Loans-The Streamline Refinance Loan, also known as the Interest Rate Reduction Refinance Loan (IRRRL), is one of the best options for borrowers who already have a VA Loan and would like to refinance to obtain a lower monthly mortgage rate.

The FHA streamline loan does not require proof of income like W2s or tax returns. Most other types of loan require the lender must determine the borrower’s ability to afford the new monthly payments.

FHA streamline loans do not require that you have an appraisal. The homebuyer can save $350-$550 or more. The lender uses the original purchase price of the home as the current value

No. The FHA streamline refinance does not allow cash out at closing. The loan amount will total the outstanding loan balance plus a new upfront mortgage insurance premiums

FHA streamline refinance loans do not require you to occupy the property, but you must provide evidence that you once did.

Ask your lender for a credit for closing costs. The lender can typically credit all or part of your closing costs on an FHA streamline.

FAQ’s About USDA Rural Loans Loans

USDA Rural Loans-The USDA Rural Loans are mortgages that are backed the U.S. Department of Agriculture as part of its USDA Rural Development Guaranteed Housing Loan program. USDA loans are available to home buyers with below-average credit, offer 100% financing also with a reduced mortgage insurance premiums, and they usually feature below-market mortgage rates.

USDA does not have maximum loan amount. Borrowers qualify based on their debt to income ratios. The limit for DTI is generally 42%, but exceptions do exist for borrowers with strength in other areas of their mortgage application.

Add a few days to a week or more to the standard loan closing time for USDA rural loans. They have to be approved by the mortgage lender then sent to a local USDA office for final approval. The latter can take anywhere from a few days to a few weeks

No, there are no restrictions that the USDA places on previous home ownership.

USDA loan approval criteria state that if you have been discharged from a Chapter 7 bankruptcy for three years or more, you are eligible to apply for an USDA mortgage. If you are in a Chapter 13 bankruptcy and have made all court approved payments on time and as agreed for at least one year, then you would also be eligible to make an USDA loan application.

USDA Mortgages have no down-payment requirement.

USDA offers fixed-rate loans. All USDA loans are fixed-rate mortgages. In a fixed rate mortgage, your interest rate stays the same during the entire loan period, this is normally 30 years. With the fixed rate mortgage the borrower always knows exactly how much your monthly payment will be, so you can plan for it.

Yes, the USDA requires the property to be located in a rural area. To determine which areas of the state are eligible for USDA financing, visit our property eligibility page. Typically, towns with a population less than 20,000 are considered eligible for a USDA home loan.

Yes, any difference between the contract price and the appraisal value can be used to finance normal closing costs for a USDA mortgage.

FAQ’s About 203k Loans

203k Loans-The FHA 203k renovation loan program provides funds for both the purchase and renovation of a home into one mortgage loan. Renovation funds are held in escrow to pay for pre-determined renovation work done by approved renovation contractors and released once the purchase of the home is closed.

The Standard 203(k) loan allows for up to six mortgage payments to be included in the renovation funds to cover housing for the period when the home is uninhabitable during renovation. A streamlined 203(k), however, cannot be used if the home will not be habitable at any time during the renovation.

The 203(k) loan program is eligible for use on single family homes,1- to 4-unit buildings; following specific guidelines, the 203(k) mortgage can also be used on a condominium unit for improvement of the interior only. The program allows for financing mixed-use building projects that combine retail or commercial space with residential space. In these cases, the 203(k) loan can only be used for renovation of the residential portion of the building.

A 203k loan can be used to purchase a HUD-owned property that is determined by HUD to be eligible for the program.

Yes, the FHA allows the use of an EEM, which provides funds beyond the FHA loan limits and the buyer’s approved loan amount for improvements that increase the energy efficiency and lower the utility costs of the home. An energy audit must be conducted by an approved home energy rater to assure that the energy savings over the useful life of the improvements will exceed their costs. The total amount of an EEM mortgage can be up to 5% of the value of the property

The appraiser is given a copy of the contractor’s bid documents to identify the repairs and remodeling to be done along with their costs. The appraiser then determines the value of the home after completion, “subject to” the improvements to be made. In some cases, up to 110% of this value may be used for loan approval purposes.