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  • Defining loan programs, you may qualify for more than you think!

    Thursday, March 14, 2024   /   by Amy Brown

    Defining loan programs, you may qualify for more than you think!

    We all deserve a safe and comfortable place to call home. And did you know that there are a ton of mortgage products out there that don't require 20% down? A lender can be your best friend in navigating the financial world of real estate by giving you options that are more affordable, terms that work better for your situation, less money out of pocket, and projections for future options. Owning a home is a way to grow wealth and we want to get you there. 

    I also wanted to point out that beside every home on our website is a mortgage calculator. 

    To start viewing homes, click the following link: https://sellingavl.com/search-mls/

    From here you have reached the search dashboard. You can adjust your search parameters for a more detailed search and adjust the map to only see homes in your preferred locations.
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    Then click on a home to view.

    From here you can ask me a question directly (it goes straight to my cell phone), book a showing, or share it with a friend or loved one.

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    But let's talk about affordability and other tools.

    Scroll down the page and you will find the features of the home, the activity for that particular listing (let's you know how fast you will need to move), market activity for the neighborhood, and the mortgage calculator.

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    Scroll down even farther and you will find walkability and public transit scores along with demographic information.

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    Now let's talk loans. 

    Here are the national average rates distributed by our lending partner, Kim Winters at Movement mortgage this morning.

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    Rates fluctuate daily and this rate will not necessarily reflect what you will receive once you fill out your application. Your rate could be even better!

    Now let's breakdown the types of loans.

    1. Conventional loans

    conventional loan is any mortgage that’s not backed by the federal government. Conventional loans have higher minimum credit score requirements than other loan types — typically 620 — and are harder to qualify for than government-backed mortgages. Borrowers who make less than a 20% down payment are typically required to pay private mortgage insurance (PMI) on this type of mortgage loan.

    The most common type of conventional mortgage is a conforming loan. It adheres to Fannie Mae and Freddie Mac guidelines and has loan limits, which often change annually to adjust for increases in home values. The 2023 conforming loan limit is $726,200 for a single-family home in most of the U.S.

    Key features:

    • Require a minimum 620 credit score
    • Require borrowers to provide in-depth income, employment, credit, asset and debt documentation for approval
    • Typically require PMI for a down payment of less than 20%

    Ideal for: Borrowers with a steady income and employment history, strong credit and at least a 3% down payment.

    2. Fixed-rate mortgages

    A fixed-rate mortgage is exactly what it sounds like: a home loan with a mortgage interest rate that stays the same for the entire loan term. The rate included on your closing disclosure is the same rate you’ll have for the length of your repayment term, unless you refinance your mortgage.

    Two common fixed-rate options are 15- and 30-year mortgages. Unlike some other types of mortgage loans that have variable rates, fixed-rate loans offer more stability and predictability to help you better budget for housing costs.

    Key features: 

    • Include a fixed interest rate that won’t change over the life of the loan
    • Usually come in repayment terms of five-year increments, though some lenders let you pick from custom loan terms

    Ideal for: Borrowers who prefer stable principal and interest payments on their mortgage.

    3. Adjustable-rate mortgages

    An adjustable-rate mortgage (ARM) is a type of mortgage loan that has a variable interest rate. Instead of staying fixed, it fluctuates over the repayment term. One popular ARM option is the 5/1 ARM, which is considered a hybrid mortgage because it has both a fixed-rate period and a period where the rate adjusts on a recurring basis.

    With a 5/1 ARM, the interest rate is fixed for an initial period of five years and then adjusts annually for the remainder of the loan term. ARMs usually start off with lower rates than fixed-rate loans but can go as high as five percentage points above the fixed rate when they adjust for the first time.

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    Additional fees on ARMs in 2023

    Beginning May 1, 2023, you may also have to pay higher interest rates or an extra fee at closing if you choose a conventional ARM. The extra cost will apply to those borrowing more than 90% of their home’s value and will be 0.25% of the loan amount.

    Key features: 

    • Include a variable rate, which can change based on market conditions
    • Typically begin with a mortgage rate that is lower than fixed-rate loans
    • Come with a lifetime adjustment cap, which often means the variable rate can’t jump by more than five percentage points over the life of the loan

    Ideal for: Borrowers who plan to move or refinance before the fixed-rate period on their loan ends.

    4. High-balance loans

    high-balance loan is another type of conventional loan. In a nutshell, it’s a loan with a balance that exceeds the standard conforming loan limit, but it is still considered to be conforming because it stays within the loan limit that the Federal Housing Finance Agency (FHFA) has set for localities it recognizes as high-cost areas.

    The high-balance loan limit for single-family homes in 2023 is $1,089,300, which is 150% of the standard loan limit mentioned above.

    Key features:

    • Adhere to Fannie Mae and Freddie Mac guidelines
    • Allow borrowers to borrow above standard loan limits in high-cost counties

    Ideal for: Borrowers who want a conventional loan in an area where home prices are higher than average.

    5. Jumbo mortgages

    jumbo mortgage is a larger conventional loan, typically used to buy a luxury home. Jumbo loan amounts exceed all conforming loan limits and often require a large down payment of at least 20%.

    Jumbo loans differ from high-balance conforming loans in that jumbo loans don’t conform to the guidelines put in place by Fannie Mae and Freddie Mac. You may also qualify to borrow more with a jumbo loan than a high-balance loan — perhaps $1 million or more — if you’re eligible.

    In recent years, jumbo mortgage rates haven’t been significantly higher or lower on average when compared with conforming conventional loans.

    Key features:

    • Allow for larger loan amounts, even if they exceed the limits for conforming loans
    • Have stricter credit score and down payment requirements than conforming loans
    • Require a large down payment

    Ideal for: Borrowers who need a mortgage that exceeds conforming loan limits.

    6. FHA loans

    The Federal Housing Administration (FHA) backs these types of mortgage loans, which cater to borrowers with credit blemishes and limited down payment funds. You can qualify for an FHA loan with a 580 credit score and a minimum 3.5% down payment. If your score is between 500 and 579, you’ll need a 10% down payment. In 2022, the FHA loan limit in most U.S. counties is set at $420,680 for single-family homes. In high-cost areas, the FHA loan limit is $970,800.

    FHA loans have mandatory mortgage insurance premiums. If you put down less than 10%, you’ll pay FHA mortgage insurance for the life of your loan — unless you refinance into a conventional loan after building at least 20% equity. Otherwise, you’ll only pay it for 11 years if you put down at least 10%.

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    Good News for Borrowers Paying FHA Mortgage Insurance

    FHA mortgage insurance is getting cheaper in 2023. As of March 20, the Federal Housing Administration (FHA) reduced its annual insurance premiums by 0.30 percentage points. That’s good news for the average FHA borrower, who will save around $800 per year as a result.

    Key features: 

    • Require just a 580 credit score to qualify for the minimum down payment amount
    • Include a mortgage insurance premium requirement for most borrowers
    • Come with the ability to buy a multi-unit property with up to four units as a primary residence with just 3.5% down (and at least a 580 score)

    Ideal for: Borrowers with lower credit scores and access to minimal savings for a down payment.

    7. VA loans

    Military servicemembers, veterans and eligible spouses may qualify for a loan backed by the U.S. Department of Veterans Affairs (VA).

    In the vast majority of cases, VA loans don’t require a down payment. While the VA doesn’t have a minimum credit score requirement, VA lenders may expect to see a minimum 620 credit score. Additionally, the VA no longer has loan limits for borrowers who have never used their VA loan benefits or have paid their existing VA loans in full.

    Key features: 

    • Provide opportunities for members of the military, veterans and eligible spouses to buy a home
    • Don’t require a down payment in most cases

    Ideal for: Qualified military borrowers who need a no-down-payment loan option.

    8. USDA loans

    The U.S. Department of Agriculture (USDA) insures USDA loans provided to low- and moderate-income buyers looking to purchase homes in designated rural areas. No down payment or mortgage insurance is required for these types of home loans, but there are income limitations.

    Key features:

    • Cater to borrowers interested in buying homes in USDA-designated rural areas
    • Don’t require a down payment or mortgage insurance

    Ideal for: Borrowers with a modest income looking for a 0%-down-payment loan.

    9. Second mortgages: Home equity loans and HELOCs

    second mortgage is a different type of mortgage loan that allows you to borrow against the equity you’ve built in your home over time. Similar to a first mortgage, which is the loan you use to buy a home, a second mortgage is secured by your home. However, a second mortgage takes a subordinate position to a first mortgage, which means it’s repaid after a first mortgage in a foreclosure sale.

    Both home equity loans and home equity lines of credit (HELOCs) are types of second mortgages. A home equity loan is a lump-sum amount. It typically comes with a fixed interest rate and is repaid in fixed installments over a set term. A HELOC is a revolving credit line with a variable rate that works similarly to a credit card. The funds can be used, repaid and reused as long as access to the credit line is open.

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    Rate Changes on Subordinate Loans in 2023

    Beginning May 1, 2023 the rules around conventional loans are changing and could make having second mortgage loans — including the home equity loans and HELOCs often used as piggyback loans — more expensive for some borrowers. Under the previous rules, the fees charged for a subordinate loan varied according to the LTV of both the first and second loans and the borrower’s credit score. Under the new rules, fees will depend on the LTV of the first mortgage but will only be charged if the combined loan-to-value (CLTV) ratio of both loans is higher than the LTV for the first loan. This could be a positive for borrowers with home equity lines of credit with a balance of zero.

    Key features: 

    • Allow borrowers to tap their home equity for any purpose, including debt consolidation or home improvement
    • Include lump-sum and credit line options
    • Use a borrower’s home as collateral, just like a first mortgage

    Ideal for: Borrowers who want to use their existing equity to fund other financial goals.

    As always we are here to assist you with advice and guidance as to the lending process and navigate buying and selling in NC. Please call me anytime with questions. The phone number below is my cell phone and is always available to you!