Loans and Down Payments
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Choosing the right mortgage loan is the second biggest decision in the homebuying process (only behind actually picking your future home). There are numerous options, and some loans have very specific prerequisites for applicants. In this webinar, you will learn about several mortgage loan options and how to plan for your down payment.
Welcome everyone. My name is Sherry Olsen, and I would like to start off with perhaps a new introduction. I am with Define Mortgage Solutions, LLC which is the new subsidiary of Desert Financial Credit Union. The same lending team with the same branch locations and phone numbers. I am part of this Real Estate Lending team and have been in loan origination and management for more than 25 years, and I sincerely hope to be a resource for you today. For those new to these webinars, this will be a series covering the mortgage process with the goal in mind to offer better service to our members and to bring you additional value. This is the second webinar in the series. Last month we discussed the Pre-Qualification process. If you would like to review it or share that webinar with others, the recorded webinar is available on the main Desert Financial website at DesertFinancial.com/Webinars. Today’s webinar will be posted for review within 48 hours after we finish. During today’s webinar which is covering loan programs I will take questions at the end, but you can post your questions at any time by using the chat box. If possible, some answers will be provided during the webinar. I will also be referring to a few documents during the presentation. The documents referenced will be available for download later on the website.
To help with your understanding let’s review a few facts that apply to all of the loan programs we are discussing today. If you are taking notes I will be talking about the 4 C’s.
Your loan officer will collect documentation from you to verify your 1st C – which stands for Compensation (which is your income), your Cash is the 2nd C (which actually represents your assets and truly not cash on hand), your 3rd C refers to your Credit Score, and finally the 4th C which is Collateral (the appraisal that Define Mortgage Solutions will order during the loan process). As a quick repeat: Compensation - income, Cash –assets, Credit Score, and Collateral – the appraisal. By the way, in case you are wondering, when we finish today you will have the opportunity to speak to a loan officer or schedule a meeting at a branch and meet face to face to discuss all of these details. And if you are listening in and have questions about a refinance to improve your rate, or perhaps take cash-out, we are here to educate you with those questions as well. I have learned to remind everyone that talking to a loan officer and obtaining a Pre-qualification has no cost or obligation to you, it is a service we provide to take care of our members or potential members.
So, for the time being let’s focus on discovering which program appears to fit your needs or goals best. 1st up: Fannie Mae, the largest investor for Conventional Loans. Conventional loans are available with 3% down based on your credit score, with the norm typically being 5% down. The important concept to remember with Conventional loans is that your credit score is a critical piece in determining loan approval, loan costs, and interest rates, as well as the required timeframe from any major credit disruptions like a bankruptcy or foreclosure. The required waiting period differs based on the loan program you are interested in, so share all of your information upfront, so the loan officer can help you focus on the best program for you.
As an example, the minimum credit score for a Conventional loan is 620, but at the other end of the spectrum a 740 credit score or higher will significantly reduce loan costs and provide additional options for Conventional loan programs. As a reminder, credit scores were discussed in depth during the first webinar.
As we continue our review of Conventional Loans, there are a few points to remember. Conventional loans allow for the purchase of a primary residence, a second home or even an investment property where FHA and VA loans are for owner-occupied primary residences only.
As you can tell, I am covering numerous pieces of information since these webinars are focused on educating you, as well as helping you understand why it is so important to speak with a loan officer early in the process. This will allow us time to answer your questions and review documents needed so you are truly prepared before you ever start looking at homes. Even if your goal is to purchase in 2019, understanding the requirements today is being proactive and prepared.
With that, here is possible new information on Private Mortgage Insurance since we are still talking about Conventional Loans. Note, it is an important point to make that this insurance (PMI) is not hazard or property insurance, but rather insurance that reduces the lenders risk when your down payment is less than 20%. The insurance is typically paid by the buyer as part of their monthly house payment. If you are considering a Conventional loan, this insurance is often referred to as PMI or Private Mortgage Insurance. When you meet face to face with your loan officer, or speak with one over the phone, all of the options for Private Mortgage Insurance will be presented.
So add to your notes that PMI will be required if your down payment is less than 20% on a Conventional loan.
Here is another option!
Fannie Mae does offer a very popular Conventional loan which is called HomeReady®. This loan is very unique in that your down payment requirement of 3% can be a gift or grant.
Plus there are a number of highlights to this program:
- Roommate income is allowed even if they are not on the loan. (With special requirements)
- The PMI on a HomeReady® loan is lower than standard private mortgage insurance because it is a special program.
I do want you to consider that with those extra benefits there are a few special requirements for a HomeReady® loan:
- You the buyer/member, must complete an online homebuyer education class with an entity called Framework. It is an interactive course designed to help you understand the essentials of home buying and homeownership.
- You the Borrower/buyer must meet the income limits of the property location – which is based on census tracts. That simply means that not all areas will have access to this program.
So you can see if this program is of interest to you — there are special steps to take upfront to maximize your opportunities.
Again I hope you understand that this webinar provides an introduction to loan programs and your loan officer will spend as much time as you need — listening to your questions, providing answers and presenting detailed loan options based on those discussions. This is your loan, and we are here to assist you.
I have yet another option for you to consider-
- If you have already chosen your loan product
- Have all of your documents gathered
- Funds available to close today
- Need to move as quickly as possible
Ask about our Closing Guarantee! Define Mortgage Solutions understands, that many buyers are ready, willing, able and definitely want to be in a home quickly, and we can help you accomplish that. Check out the Closing Guarantee with your loan officer.
We probably need to take a moment for a quick recap:
The current maximum Conventional loan limit is $453,100. If you are interested, the loan limits for a duplex, triplex or four-plex are higher and yes, we offer those products.
Define Mortgage Solutions can also assist you with what is known as a Jumbo loan which is a loan over the maximum Conventional limit of $453,100.
I completely recognize that not everything can be covered in this thirty minute educational webinar so questions about Jumbo loans or even Adjustable Rate Mortgage loans, can be reviewed with your loan officer.
Hope you have caught your breath. I believe this is a good time to move on to FHA which stands for Federal Housing Administration. FHA’s loan program is often referred to as a First Time Homebuyer Program or Loan. First Time Homebuyers definitely use FHA, but so do many other buyers who will owner-occupy the property as their primary residence. You may have owned a home before, but at this time may choose an FHA loan, or based on the more lenient guidelines that FHA offers, it becomes the best option for you. As an example, credit scores at 640 and above with an FHA loan will not experience higher loan costs based on the credit score as I mentioned with Conventional Loans.
Additionally if a buyer has experienced a Bankruptcy, or Foreclosure, FHA will consider the loan application with a shorter required waiting period which is awesome. These are very positive loan features that FHA offers.
FHA has a low, minimum down payment investment of 3.5% of sales price. Similar to HomeReady, these funds can all be gifted from family, grant money or employer contribution. What may be of interest to you is that with an FHA loan there is no requirement for Homebuyer Counseling although recommended, or unique census tract for the home. Pretty amazing right?
FHA does have a maximum loan amount which is determined county by county and state by state but for our conversation today, Maricopa country will have $294,515 as the Maximum FHA loan amount. Similar to Conventional loans, FHA has Mortgage Insurance with 2 slightly different names and calculations. The Upfront MIP or Mortgage Insurance Premium is typically financed into every FHA loan and is the same for all lenders and borrowers at 1.75%. This will be added to your loan balance. Additionally, FHA has a Monthly Mortgage Insurance Premium which is calculated annually but you pay it monthly in your payment. With a minimum down payment the MIP is .85% of base loan amount.
Since we recently covered the down payments for Conv. and now FHA I would like to talk about closing costs and a seller contribution as it may apply today for this webinar.
It is true that mortgage loans allow for a seller to assist with closing costs, but will the seller agree to that? Are you prepared to pay your closing costs if necessary? This is part of the discussion you want to have with your loan officer so you are informed and knowledgeable regarding all potential loan costs.
Recently, with the lower inventory of homes on the market, sellers in many areas have minimized their contributions, but markets do change, so be prepared. Define wants to present all figures to you with or without seller assistance and allow you time to make appropriate decisions. We are here to serve you as we have done so for the past 80 years under the guidance of Desert Financial.
I believe we can now move onto VA loans, which are also for the owner occupied primary residence of a Veteran. VA stands for Veteran’s Administration. The VA loan is designed for those eligible Veterans who have sufficient eligibility/entitlement to purchase a home with ZERO down, yes I did say ZERO down or perhaps the Veteran would like to refinance their existing home. VA loans will also follow the 4 C’s that I covered earlier, but we will also review the Veteran’s Certificate of Eligibility, and military discharge paperwork with the most common form being the DD214. VA also has a form of insurance referred to as the Funding Fee (again to reduce lenders risk) which is typically added to the loan amount. The Funding Fee can range from 0.5% for refinances to 3.3% if you are a subsequent user of the VA Home Loan Program. (To clarify the 3.3% means you have obtained a VA loan more than once). For first time use the Funding Fee is 2.4%.
VA is also very also reasonable with credit score requirements and looks for satisfactory credit risk, and you’re remaining cash flow or residual after all debts are considered.
For our area in Arizona, with zero down, the typical loan limit is $453,100. A few states are called Higher Cost States, and VA will allow for a higher loan amount. Other options exist with a down payment to exceed the $453,100, so again, explore.
At this time we will touch on some (not all) of the Down Payment Assistance programs which have unique differences between them but in most cases:
- A forgivable second mortgage is being created
- Home Buyer Education is Required
- Down Payment Assistance varies from 0-5% considering the loan program, credit score, and income.
- Geographic area requirements may apply
Since I could not possibly cover all of these details or all of the programs, I have a download available which will include a brief overview of a number of DPA programs. I am going to quickly move thru these slides pointing out a few highlights since I recognize you will need to complete a deep dive on each of them individually to make your decision.
- WISH Program
- HOME IN 5
- HOME PLUS
- Pathway 2 Purchase
I want everyone prepared to note that these programs typically come with a higher interest rate in almost all cases since the program is providing the down payment. The one exception being the WISH program which is a 3/1 matching grant program and market interest rates apply.
Again remember, our goal at Define Mortgage Solutions is to remain transparent and provide the information. Each one of these programs is an excellent opportunity to create the bridge to homeownership. Our team is here to present the information and guide you thru the details while you make the ultimate decision.
Another important comment to add to your notes. You need to be aware that funds for the various Down Payment Assistance programs can be exhausted, or “used up,” at different times based on consumer requests, and you may be waiting for refunding. The funds cannot be set aside for you until you have an accepted offer, and in many cases your Homebuyer Education completed before you have an accepted contract on a home. So if these are programs that you are interested in, you truly need to be on board and very pro-active with a loan officer covering all the details.
Wow, this is so much information. Remember that you have the option to listen to the recording and check out the documents after we finish today.
What could I possibly add at this point? Well, any chance you have already been on the internet looking at properties? Come on…..It is so easy and most people spend time on at least one of the sites. In fact, the National Association of Realtors report that 93% of all potential buyers look online at homes before ever talking to a Realtor. What you may not recognize is that not only is the information not complete or accurate, but your personal information is being shared with a number of Realtors and Lenders. I would like to share that you can have access to a private app which reflects all of the Real Estate listings in real time. As a subsidiary of Desert Financial, I am pleased to share that you can download the mobile app called HOMESCOUT and avoid all the calls and emails. You can shop for homes just like a Realtor. The app is available at no charge by following the instructions you see on the screen. You simply download HOMESCOUT from the App Store or Google Play and use the personal code Desert Financial VIP. Make sure you choose HOMESCOUT. If you have any questions or challenges with the app let us know, and we will assist you. It is amazing what you can do with that app. You know the code should also be in the chat box by know so you can write it down, but again the code for the HOMESCOUT app is Desert Financial VIP.
Finally your loan officer will introduce you to our Broker Program. The Realtors in the Program were recommended by their Real Estate Broker and will provide $500 towards your closing costs which is another value add.
Okay Closing Guarantee, resource items to download regarding some of the Down Payment Assistance Programs, the HOMESCOUT app, and the introduction of Define Mortgage Solutions LLC, a wholly owned subsidiary of Desert Financial with the same group of team members. That is definitely more than enough for one day.
How about any unanswered questions?
It appears we have used our time for today. Our next Webinar will be offered on November 7th at 2:00 p.m., so please mark your calendar and register.
The phone lines are open to answer your questions or start the pre-qualification process with no cost or obligation at 602-433-HOME (602-433-4663). If you prefer to meet at one of the branches please tell the person taking your call that you prefer a face to face meeting and they will transfer your call.
The number is also showing in the Chat Box for your convenience and on the screen.
This is your host Sherry Olsen thanking you for your participation, and I look forward to have you join our next webinar. If you would like to contact me my information is provided on your screen.
Have a great day!