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FAQ

Loans

What is a conventional loan?

Conventional loans are loans that are not insured or guaranteed by the government. These loans are categorized into two groups, conforming loans and non-conforming loans.

Within the conventional product line are lender paid and up front mortgage insurance products. These products allow for lower downpayments with the offset being either upfront fees paid or financed or higher interest rates to offset the equivalent of the monthly mortgage insurance payment.
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What is a conforming loan?

Conforming loans are loans which meet the requirements of two quasi-governmental agencies, Fannie Mae and Freddie Mac.

Conforming loans have down payment requirements from 3% to 25%, depending upon the individual details of the loan request. As an example, purchasing a home for an investment (i.e. to rent) will require a larger down payment than someone buying a home to occupy as their residence. There are many variables involved in prequalifying for a conventional loan.
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What is a non-conforming loan?

Non-conforming loans are also referred to as Jumbo Loans. Although sometimes other characteristics of the loan such as credit score or property type may also cause a loan to be classified as Non-Conforming.
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What is a Federal Housing Administration (FHA) loan?

A FHA insured loan is a Federal Housing Administration insurance backed mortgage which is provided by a FHA-approved lender. FHA insured loans are a type of federal assistance that allows Americans to borrow money for the purchase of a home that they would not otherwise be able to afford because of the downpayment required. FHA loans provide for low downpayments (3.50%) with the provision that the borrower will pay a mortgage insurance premium (MIP) equal to a percentage of the loan amount at closing and is normally financed by the lender and paid to FHA on the borrower’s behalf. Depending on the loan-to-value ratio, there will be a monthly premium as well.

FHA also provides for programs for home repairs. This program is for repairs and minor improvements. Luxury items and improvements are not eligible as a cost rehabilitation. However, the homeowner can use this program to finance such items as painting, room additions, decks and other items even if the home does not need any other improvements.
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What is an Energy Efficient Mortgage (EEM) loan?

The Energy Efficient Mortgage Loan program helps current or potential homeowners significantly lower their monthly utility bills by enabling them to incorporate the cost of adding energy efficient improvements into their new home or existing housing. This FHA program eliminates the need for homeowners who are interested in making their home more energy efficient to take out an additional mortgage loan to cover the cost of the improvements they intend to make to their property. The program is available as part of a FHA insured home purchase or by refinancing your current mortgage loan. Energy Efficient Mortgages can also be used with FHA rehabilitation program.
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What is a Veteran Affairs (VA) loan?

A VA loan is a mortgage loan guaranteed by the U.S. Department of Veteran Affairs (VA). The VA loan was designed to offer long-term financing to eligible American veterans or their surviving spouses(provided they do not remarry). The basic intention of the VA direct home loan program is to supply home financing to eligible veterans in areas where private financing is not generally available and to help veterans purchase properties with no down payment.

The VA loan allows veterans 103.15 percent financing without private mortgage insurance or a 20 per cent second mortgage and up to $6,000 for energy efficient improvements. A VA funding fee of 0 to 3.15% of the loan amount is paid to the VA; this fee may also be financed.
VA loans allow veterans to qualify for loans amounts larger than traditional Fannie Mae / conforming loans. The maximum VA loan guarantee varies by county. VA also allows the seller to pay all of the veteran’s closing costs as long as the costs do not exceed 6% of the sales price of the home.
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What is a United States Department of Agriculture (USDA) loan?

USDA loans are primarily used to help low-income individuals or households purchase homes in rural areas. Funds can be used to build, repair, renovate or relocate a home, or to purchase and prepare sites, including providing water and sewage facilities.

Families must be without adequate housing, but be able to afford the mortgage payments, including taxes and insurance. In addition, applicants must have reasonable credit histories.

There is no required down payment.
Housing must be modest in size, design, and cost.
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What is a reverse mortgage (FHA HECM) loan?

A Reverse Mortgage (RM) is a product that benefits the senior population (62+). The loan allows seniors to purchase or refinance their home with deferred payments.

Qualifying for a RM loan is VERY simple. Age and Value home are the only two initial criteria. There is no credit score requirement, no income verification. The final loan amount is based upon the age of the youngest borrower and the home value. There are loan maximums. In the case of a purchase, the RM loan would fund about 55-60% of the price. You will pay up front mortgage insurance

Although principal and interest payments are deferred, you are still obligated to pay property taxes and insurance and keep it maintained.
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Credit

What is a credit score?

Credit scores are numerical values that rank individuals according to their credit history at a given point in time. Your score is based on your past payment history, the amount of credit you have outstanding, the amount of credit you have available, and other factors. According to Fannie Mae and Freddie Mac, two of the largest purchasers of home loans from lenders, credit scores have proven to be very good predictors of whether a borrower will repay his or her loan.
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What Is A FICO Score?

“FICO” scores are a type of credit score developed by a Fair Isaac & Company. FICO scores use credit bureau information to obtain a score which indicates how likely someone is to make their loan payments on time. Millions of consumers’ credit bureau records were used to develop the scorecards, and all of the consumer data – not just negative information -was included to develop the system. FICO scores range from approximately 350 to 900. The higher the score the more likely someone is to make their payments. Similarly, the lower the score the more likely someone is not to make their payments.
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How Can Credit Scores Affect The Price of a Loan?

Just as credit scores are one factor in determining if you qualify for a loan, they may also be a factor in determining the price of your loan. The price of a loan means the interest rate and the points charged by the lender and/or a mortgage broker. The price charged for a loan will be higher or lower depending on various factors.

Many mortgage loans are sold to investors, and investors will pay a more favorable price for loans they feel have a low risk of default. Fannie Mae and Freddie Mac use credit scores as their analysis when pricing loans they buy from lenders because of this very reason. Thus, applicants with lower credit scores may pay higher prices for their loans because of the higher risk of default and loss.
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How to Improve Your Credit Score

Because each borrower’s credit score is a reflection of his or her unique credit profile, it is not possible to quantify in advance exactly how each item in your credit history numerically impacts upon your ultimate credit score. No one can tell you, for example, how much your credit score will be affected if you pay off a delinquent account or cancel a credit card. We do know, however, that there are things you can do to improve your credit profile.

Some of the factors which may impact your credit scores include:
• Making timely payments: Making your payments on time is the best way to increase your score. Delinquency, foreclosures, bankruptcies and judgments will decrease your score.

• Limit the number of trade lines: The number of credit cards, lines of credit and other types of credit (” trade lines “) you have available will affect your score.

• Avoid unnecessarily high credit limits: Lenders also consider the amount of credit available to you (your credit limit) compared to your income when making underwriting decisions and trade lines.

• Do not apply for credit you do not need: Whenever you apply for credit, the creditor will obtain a credit report from one or more of the three credit bureaus. Each such credit inquiry will stay on your record and will affect your credit score.