The Hard Working Mortgage Guys
The credit score needed will depend on a variety of factors but the basic answer to these questions is on a Conventional Mortgage you need a middle credit score of 620 and for an FHA mortgage you need a middle credit score of 580. There are times that a lower credit score might be ok but that will generally mean that you will need more equity/down payment or you have a very low debt to income ratio.
A conventional mortgage is a loan that meets Fannie Mae’s (Federal National Mortgage Association) and Freddie Mac’s (Federal Home Loan Mortgage Corporation) lending criteria. Fannie Mae and Freddie Mac are government-backed institutions that buy mortgages from private lenders to support the housing market. To qualify for a conforming loan, a borrower must meet specified lending conditions, such as a credit score and a minimum down payment.
The Federal Housing Administration insures FHA loans, which are government-backed mortgages. FHA home loans generally have lower credit score and down payment requirements than many conventional loans, making them particularly appealing to first-time homeowners. These loans are insured by the government, but they are underwritten and operated by third-party mortgage lenders. FHA loans have both fixed and variable (ARM) interest rates and are available in 15-year, 20-year, 25-year and 30-year durations. The agency’s lenient underwriting rules are intended to assist borrowers who may not otherwise be eligible for private mortgages. FHA requires the borrower must to pay two mortgage insurance charges on all FHA loans:
- Upfront mortgage insurance premium: 1.75 percent of the loan amount is paid as an upfront mortgage insurance fee when the borrower receives the loan. The premium might be rolled into the amount of the financed loan.
- Annual mortgage insurance premium: Annual mortgage insurance premiums range from 0.45 percent to 1.05 .85 percent, depending on the loan period (15 vs. 30 years), loan size, and initial loan-to-value ratio (LTV). This premium is divided by 12 and paid on a monthly basis.
A VA mortgage is for current servicemembers, Veterans and eligible surviving spouses and can be use to buy and to refinance a home. One of the biggest benefits to a VA mortgage is you can finance a home with $0 down and you do not have private mortgage insurance (PMI). Even with no down payment the VA rate is normally a competitive low rate.
USDA offers $0 down payment mortgage options to low- and moderate-income borrowers in qualifying rural areas. This is an excellent program for folks with low to medium incomes, who don’t have the down payment associated with most mortgages and who wants to live in a rural area.
The DSCR mortgage is for non—owner occupied properties and can be used to buy or refinance a property. There are a wide range of DSCR and most of them make it very easy to finance a non-owner-occupied home. They generally require credit scores over 620, 20% to 30% down, 6 months reserves (6 months of savings which we many times cover with a 401K balance) and an appraisal with rent analysis. This mortgage cannot be use on a primary residence.
For most financing options a cash out, refinance is any refinance where you borrow over $2000 more than your current mortgage balance, closing costs and pre-paid items. If you have a second mortgage or home-equity line of credit and you did not take that loan out when you purchased the home or you have made draws on that loan after your closing and you want to payoff that loan with the new loan the refinance would be considered a cash out refinance. Most cash out refinances are limited to an 80% loan to value.
The first step is to contact a professional, experienced mortgage lender and have them work with you on getting your pre-approved. This would include your credit being run and all relevant documentation for you being collected by the lender. Once you are pre-approved you would want to contact a realtor. Your lender should be able to refer you to a top Realtor if you need a referral. The Realtor will work with you to find and negotiate a purchase of your home. Once you have a purchase agreement you would make sure your lender received that purchase agreement. Your lender will need a lot of information from you and the quicker you provide that information the quicker you will close. You should order an inspection of the home. If any items show up on the inspection you would work with your realtor and the sellers to negotiate a solution. An appraisal will be ordered within a few days of you providing everything to your lender. Once the appraisal is in and your loan is approved you will be ready to close. Your realtor will coordinate the closing date and time with all parties. You will show up at the closing and sign all the paperwork.
Some areas close with a title company and some close with attorneys. It normally depends on the State you are in.
Closing costs are fees you incur when financing a home. These fees include lender fees like origination fees, underwriting fees, processing fee, loan doc prep fees, application fee, appraisal fee, tax service fees, etc. The amount of fees will depend on your lender and your area.
Closing costs are money you will need at closing in addition to your down payment and prepaid items on a purchase. Many times, closing costs can be added to the loan amount on a refinance.
Prepaids are items collected for escrow. These items include, property taxes, homeowners’ insurance, mortgage insurance, etc.
The also include prepaid interest which is normally paid from the day your loan funds until the end of the month. This is what I would call hidden fees if they do not tell you about it. Some lender will start charging you prepaid interest on a refinance starting the day you close (most start on the day of funding which can be 3 to 6 days later).
Prepaid items need to be paid by you at closing on a purchase (in addition to the closing costs and down payment) but many times can be added to the loan amount on a refinance.
Many years ago, you were required to put 20% down or have 20% equity to finance a home. This really limited the US housing market. Think about how much longer someone would have to save to have 20% down compared with just 5% down.
The insurance industry saw this problem and came up with a solution. They would insure a mortgage up to a 95% loan to value and PMI was born. Now there are many types of PMI. Most folks with less than 20% down use what is called non refundable monthly mortgage insurance. The monthly premium is added to your monthly pay. To remove your PMI is possible and generally requires that you have 20% equity verified by the original appraisal or you have a new appraisal. To use a new appraisal you may have to wait 2 years from your closing date.
Points are used to buy the mortgage rate lower. One-point equals 1% of the loan amount. If you have a $200,000 loan and pay one point that would costs you $2000. That would normally lower the rate .25.
You need a professional experienced loan office who understands the cost-benefit, the outlook for the mortgage rate market and your situation to know if paying points is a good strategy for you.
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