A quick look at the most common loan programs
By: Coral Dworaczyk
In our area, there are a wide variety of loans and mortgage programs available. Many different circumstances play into qualifying and finding the right program for each homebuyer. All borrowers should always consult their mortgage professional for the most up-to-date information and advice, but here is a quick look at the most common government and traditional loans utilized in our region.
FHA loans are guaranteed by the Federal Housing Administration (hence the name), which relieves some of the risk of possible non-payment from the actual lender. The most basic and most commonly utilized FHA loan program is known as a 203(b), which can be used on a single-family home, a duplex, a triplex or a fourplex. The maximum mortgage limit for an FHA loan on a single-family home is currently $271,050 in our area (limits are higher for multi-family properties).
This loan is popular for many first-time home buyers because it only requires a down payment of 3.5 percent of the price of the property. Although the borrower must meet loan-approval and minimum credit score requirements (a 640 score is usually required, but some lenders are able to qualify borrowers with scores of less than 600 in some circumstances), bankruptcy is not an immediate disqualification.
The FHA 203(k) Rehabilitation loan program has also gained popularity in recent years. This program allows buyers to finance both the purchase of the home and the cost of desired renovations through a single mortgage. According to the U.S. Department of Housing and Urban Development (HUD), this program can be used to:
• Make structural alterations
• Modernize or improve a home’s function or appearance
• Remedy health and safety hazards
• Repair plumbing
• Install or repair water wells or septic systems
• Replace or update flooring
• Make landscaping improvements
• Increase accessibility for handicapped persons
• Make energy conservation improvements
The cost of the rehabilitation must be at least $5,000, but the total value of the property must still stay below the FHA mortgage limit. This value is determined by the lesser of either the cost of the home plus the cost of rehabilitation work, or as being 110 percent of the appraised value after rehabilitation.
VA loans are programs guaranteed by the Veterans Administration (VA). This program was created by President Roosevelt in 1944 as a way to honor our country’s veterans and/or their spouses. The greatest benefit of this loan program is that is does not require any down payment.
To be eligible for a VA loan, borrowers must have a Certificate of Eligibility from the VA. This requirement may have been fulfilled if the borrower has served 90 consecutive days of active service during wartime, 181 consecutive days of active service during peacetime or more than six years in the National Guard or Reserves, or if the borrower is the spouse of a service member who has died in the line of duty or as a result of a service-related disability. Borrowers must also still qualify based on credit score and other financial criteria. The maximum loan limit on a single-family home is currently $417,000 in our area.
Conventional loans are any creditor agreement that is not financed by the FHA or the VA. There are two types of conventional loans:
1. Conforming loans
2. Non-conforming loans
Conforming loans meet the requirements as outlined by the government-sponsored entities commonly known as Fannie Mae (FNMA) and Freddie Mac (FHLMC). Loans that do not meet these requirements are non-conforming. Non-conforming loans may be deemed so by exceeding the conforming loan limit, involving a borrower with lack of credit history or who is credit challenged or involving non-traditional terms or collateral backing the loan.
Although conventional loans may allow from some lending flexibility and have lower fees and interest rates, they may also require a higher down payment compared to the previously discussed FHA or VA loans. The required down payment is often 5 to 20 percent in most cases.
USDA Rural Development Loans
The U.S. Department of Agriculture (USDA) now has several programs available to homebuyers. In the Coastal Bend, the USDA Rural Development loan program has been gaining popularity because it does not require any down payment. However, this loan is only available for properties located in designated rural areas. Homes in Corpus Christi, Robstown, Portland and Port Aransas do not qualify. However, most of our other communities and townships in Nueces and San Patricio Counties do qualify for this program.
Borrowers applying for the USDA Rural Loan must also meet many specific income guidelines to qualify for this loan. It is highly suggested that potential borrowers visit with their lender or consult the USDA Income and Property Eligibility website for additional information.
These are only a few of the most common and traditional residential loan programs utilized or inquired upon in the Coastal Bend. Please note that there are many other options and programs available, depending on the property to be acquired and the borrower’s specific financial portfolio. As always, consult your mortgage or real estate professional when considering a new loan program or refinancing an existing mortgage.
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