Game Plans & Options, Part 2: Determining the "Best" Loan Type for You

Game Plans & Options, Part #2:
Determining the "Best" Loan Type for You

In Part 1 of this post, I likened my role as a Mortgage Originator to that of a coach on a sports team ...

The goals are surely similar.  And some of the skills, responsibilities and aptitude demanded of each, including the ability to conduct a deep analyzation of their "team" abilities, talents, and options, are much the same.  

At initial contact, many of my Borrowers, especially those that are First-Time Home Buyers, have a preconceived notion about the type of loan they're seeking.  This is usually a result of their having performed an internet search ... or friends and family members have shared their financing experiences with them.  

While both can prove insightful, it can also lead to my clients having a pretty narrow or myopic focus during the early stages of their mortgage search.  When that occurs, I remind them that an open mind and willingness to consider all mortgage options (even unknown options or those previously dismissed) is important at this crucial stage in the mortgage process.    

I think this is where my analogy between Mortgage Originator and "Coach" is strongest and most important ...  

Originators, just as coaches, are capable of offering their clients the best options available only after gathering and analyzing the specific attributes and strengths of their "players" in the game.  And often those options end up not being what the Borrower initially thought they'd be.

This occurs fairly frequently, and I see confusion regarding the basic loan types so often, that I thought offering a synopsis of each of those loan types could prove helpful ...  

So below, ranked from most to least common, you'll find a list of the various "traditional" mortgage options accompanied by a rundown highlighting their features:

Conventional Loans:  

• Loans from as little as 3% down, but commonly issued with 5%, 10%, 15%, and 20% or more
• NOT "insured", secured, or issued by any Government Agency
• Typically adheres to guidelines set by Fannie Mae or Freddie Mac
• Credit Scores are typically a minimum of 620 or higher
• Less than 20% down typically requires Private Mortgage Insurance (PMI)
• Typical Conventional Loan Borrowers have:

       1.  Steady Employment

       2.  Sufficient Income

       3.  Sufficient Down Payment

       4.  Have had NO major credit issues in the last 4 years 

FHA (Federal Housing Administration) Loans:

• Loans made by Banks/Lenders that are privately funded, but backed ("insured") by the Federal Government, through the Department of HUD
• FHA Loans allow for some credit issues and lower credit scores (Some programs as low as 580 middle credit score; some even lower but not typical)
• Mortgage Insurance is provided/guaranteed to all approval Borrowers, via Federal Funding ... and paid for by FHA Borrowers
• FHA Loans are more forgiving in terms of allowing gift monies, non-occupying Co-Borrowers, higher debt-to-income ratios, more...
• FHA Loans have more forgiving terms on waiting periods after:

       1.  Bankruptcy

       2.  Foreclosure

       3.  Other Major Credit Issues (Collections, late pays)

VA (Veteran Administration) Loans:

• No-Money Down Loan Program guaranteed by the United States Department of Veterans Affairs (VA) for Military Personnel (Active and Former Military Veterans, Reservists, and National Guard).
• The Spouses of military members that died while on active duty or as a result of a service-connected disability may also apply.
• A Certificate of Eligibility (COE) is required, as the COE verifies eligibility for a VA-backed loan  
• No monthly Mortgage Insurance premium is paid
• There is a limitation on a VA Buyer's Closing Costs (Sellers can pay all of a buyer’s loan-related closing costs up to 4% in concessions)
• There are no prepayment penalties on a VA Loan
• More ...

USDA (Rural Development) Loans:

• Issued by the U.S. Dept. of Agriculture as the USDA Rural Development Guaranteed Housing Loan Program
• USDA Loans are for the building, rehabilitation, improvement, or relocation of a dwelling onto a USDA eligible area
• USDA Loan Program is similar to FHA and their guidelines, but allows for a no-money-down option, as well
• Income Limits Apply
• Geographical Requirements apply
• USDA Loan Applicants must:

       1. Be U.S. Citizens, a U.S. non-citizen national, or Qualified Alien

       2. Occupy the financed dwelling as their primary residence

       3.  Be income-eligible

       4.  Purchase a USDA Loan eligible property

       5.  Demonstrate an ability and willingness to meet USDA Loan credit obligations

       6.  More ...  

Private Financing:

• Rarely utilized, but includes:

       1.  Seller financing

       2.  Hard-Money Lenders

       3.  Portfolio Funds/Loans - Banker/Lenders originate the loan, retain it in a "Portfolio Fund"/do not sell the loan in the Secondary Market, and service it.  

           a.  Portfolio Loans are typically made when "Powers-to-Be" review the loan for its merits, but one segment or another of the loan does not meet Underwriting Guidelines for a Conventional, FHA, VA, or USDA Loan

           b.  Portfolio Funds/Loans - Typically have a shorter term or higher interest ... or both

           c.  Good Credit remains important when applying for a Portfolio Loan

With so many loan types and programs available to Borrowers ... and each having their own unique characteristics to know and consider ... you can see why it's so very important not to limit yourself when it comes time to finance your home.  (And why it's so important to ask me questions too.)

Borrowers must remember:  All loans are created and formed in their own unique way.  All Borrowers are different. 

In all my years as an Originator, I've never seen clients with identical financial and lending scenarios.  I don't believe I ever will.

Choosing and receiving the "best" mortgage for your needs is all about having as many options as possible to choose from. 

You expand and grow your menu of options best when you follow this advice:

       1.  Seek the advice of a Mortgage Originator as soon as you decide you want to buy (or refinance) a home.  The earlier in the process, the better.

       2.  Work with an Originator that will conduct a thorough analysis of your finances and credit ... and then follow through on the results found.

       3.  Align yourself with an Originator that develops and maintains a "team" concept leading up to Pre-Qualification and throughout your mortgage processing. They will be your advocate, keeping your best credit and financial interests in mind past Closing and in the future.

The team concept (Borrower, Originator/Lender, Realtor, Underwriter) is key to finding the right loan, completing a successful transaction, and enjoying your home.  And that's a "win", right? 

* Hoping to Buy or Refinance a home in the Chicagoland area?  Contact Me!  I'll put my 40 years of Mortgage experience and expertise hard to work on your behalf.
I'm easily found at:

Gene Mundt

Mortgage Originator - NMLS #216987 - IL Lic. #031.0006220 - WI License 216987

American Portfolio Mortgage Corp.

NMLS #175656

Direct: 815.524.2280

Cell or Text: 708.921.6331

eFax: 815.524.2281

gmundt@goapmc.com

www.genemundt.com

              

         

Gene Mundt, Mortgage Originator, an Originator with 40 years of mortgage experience, will offer you exemplary mortgage service and advice when seeking: Conventional, FHA, VA, Jumbo, USDA, and Portfolio Loans in Chicago and the greater Chicagoland region, including: The Lincoln-Way Area, Will County, (New Lenox, Frankfort, Mokena, Manhattan, Joliet, Shorewood, Crest Hill, Plainfield, Bolingbrook, Romeoville, Naperville, etc.), DuPage County, the City of Chicago, Cook County, and elsewhere within IL & WI. 

Referrals are Greatly Appreciated and Welcomed!