Loan Programs & Plans

Types of Mortgage Plans :

All mortgage plans can be divided into categories in three different ways.

1. Conventional :

(i) Fannie Mae
Fannie Mae is the common name of the Federal National Mortgage Association. Fannie Mae is a congressionally chartered, shareholder-owned company that buys mortgages from lenders and resells them as securities on the secondary mortgage market.
Before approving you, Fannie Mae looks at a number of factors including credit ratings, debt ratio, and employment history. Loans that are approved via Fannie Mae should qualify for a better rate.

(ii) Freddie Mac
Freddie Mac is the common name for the Federal Home Loan Mortgage Corporation. The 2004 maximum loan amount for both Fannie Mae and Freddie Mac is $333,700. Freddie Mac does not issue mortgages directly; rather, they buy mortgages from lenders and sell them as securities on the secondary mortgage market.

Before approving you, Freddie Mac looks at a number of factors including credit ratings, debt ratio, and employment history. Like Fannie Mae, loans that are approved via Freddie Mac should qualify for a better rate.

A mortgage broker can also help you find the best rates from various lenders for Freddie Mac loans as well as Fannie Mae loans. They can also help you determine if you are eligible for a VA Loan.

2. Government :

(i) FHA Loan
The Federal Housing Administration (FHA), which is part of the U.S. Dept. of Housing and Urban Development (HUD), administers various mortgage loan programs. FHA loans have lower down payment requirements and are easier to qualify than conventional loans. FHA loans cannot exceed the statutory limit. An FHA Loan (Federal Housing Administration) has some advantages over conventional loans. Since FHA loans are insured by the government, they generally have more lenient qualification requirements, lower down-payment requirements, and they are assumable loans. The maximum loan amount for an FHA loan (single-family) ranges depending on the county where you live. You can contact a mortgage specialist for these maximum amounts for your specific county. Government loans (including the FHA loan) make up 20 percent of residential mortgages in the U.S.

An FHA loan allows you to buy a house with as little as 3% down, instead of the higher percentages required to secure many conventional loans. Taking advantage of the FHA loan program is a great way for first time buyers, or anyone with a shortage of down payment funds, to buy a home.

The FHA does not make home loans--it insures them. If a home buyer defaults, the lender is paid from the insurance fund. To get an FHA home loan, you'll need to have a good credit history, and sufficient income to qualify for the loan.

How Much FHA Loan Can You Afford ?

For an FHA loan, your monthly housing costs should not exceed 29% of your gross monthly income. Total housing costs include mortgage principal and interest, property taxes, and insurance. Those four terms are often lumped together, and referred to as PITI.

Example :
Monthly income X .29 = Maximum PITI
For a monthly income of $3,000, that means $3,000 x .29 = $870 Maximum PITI

Your total monthly costs, adding PITI and long term debt, should be no more than 41% of your gross monthly income. Long term debt includes such things as car loans and credit card balances.

Example :
Monthly income x .41 = Maximum Total Monthly Costs
For a monthly income of $3,000, that means $3,000 x .41 = $1230
$1,230 total - $870 PITI = $360 allowed for monthly long term debt

The ratios for an FHA loan are more lenient than for a typical conventional loan. For conventional home loans, PITI expense cannot usually exceed 26-28% of your gross monthly income, and total expense should be no more than 33-36%.

Qualifying for an FHA Loan :

* To obtain an FHA loan, you must have a credit background that shows you meet your obligations.
* You must have enough income to pay your monthly debt, as outlined on page 1.
* You must have enough cash to make a down payment at the time of closing.
* You must be able to pay the closing costs, which normally total 2-3% of the price of the home. These costs might include
homeowner's insurance, attorney's fees, fees for a title search and title insurance, Private Mortgage Insurance if you are
paying less than 20% down, the loan origination fee, and a fee that goes into the FHA insurance fund.
* You might also be paying 'points,' to the lender. Each point equals 1% of the cost of the home. Sometimes a seller will agree to pay your points, and sometimes points can be financed.

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