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New Homebuyers and Understanding Different Types of Home Loans

Justin Restaino
Sep 18, 2013

The increase in real estate sales across the nation has spurred new homebuyers to take a look at buying their first piece of property. Even with rates on the rise, many potential new homebuyers are looking to buy before it’s too late. People assume conforming loans are actually the same as conventional loans. However, this is not the case; conventional loans can be either conforming or non-conforming loans. Let’s take a look at some of the different types of loans and what they mean for you. ►Conforming loans: A conforming loan would be able to be purchased by either Fannie Mae or Freddie Mac, and typically have tighter qualification standards. Such things as debt-to-income (DTI) ratio and financial documentation would usually need to be provided. Some benefits of a conforming loan is faster turnaround times to be approved, lower interest rates and no prepayment penalty to refinance or pay off the loan early. ►Non-conforming loans: A non-conforming loan may be given to someone who may not qualify for a conforming loan. If you have your eyes on a piece of property that exceeds the conforming loan limit (which is set at $417,000 for 2013), you would most likely have to apply for a non-conforming loan. Typically, these jumbo sized loans will have higher interest rates, and cannot be sold to Fannie Mae or Freddie Mac.  What is an FHA loan? FHA stands for Federal Housing Administration and these types of loans are great for many first-time homebuyers or for those who do not have the standard 20 percent to put towards their downpayment on a home. With an FHA loan, you can put as low as 3.5 percent towards the purchase price of a home. There are some additional requirements for this type of a mortgage loan. 1. The borrower must meet standard FHA credit qualifications. 2. The borrower is eligible for approximately 96.5 percent financing. The borrower is able to finance the upfront mortgage insurance premium (UFMIP) into the mortgage. The borrower will also be responsible for paying an annual premium. 3. Eligible properties are one-to-four unit structures. 4. To learn more about the mortgage limits in your area. What is a sub-prime loan? A sub-prime loan is usually given to someone who may have had less than perfect credit or may have had blemishes in the past. These loans usually have a much higher interest rate, and less favorable terms to be able to refinance down the road. You may have heard of this type of loan during the housing crisis back in 2008 and some financial experts believe that many people who bought homes with this type of financing contributed to the housing crisis. If you are in the market to purchase a new home or even to refinance, there are many options and Web sites available now to consumers. Remember your creditworthiness, DTI and other deciding factors may determine the type of financing you may have available to you. Also, if you have served in the military, you may qualify for assistance through the Veterans Administration (VA). To learn more, you should work with a  professional mortgage broker or visit your local retail banking center. K. Justin Restaino is vice president of Titan List & Mailing Services Inc. For more than 13 years, he has led Titan’s Mortgage Division, helping lenders of all capacities grow their businesses utilizing targeted direct mail. With a specialized focus in refinance and purchase markets, Restaino has the insight for proper data and mail application for success. He may be reached by phone at (800) 544-8060, ext. 204 or e-mail [email protected].
Sep 18, 2013