Loan Program Information For Home Buyers
When a borrower initially comes to us, we are often faced with the question of, “What loan program is best suited for me?” The answer to this question always depends on the individual borrower’s situation, but we generally look at the following characteristics to help identify the best loan program:
- Credit Score and Credit History
- Down Payment
- Occupancy (i.e. primary residence, secondary residence, investment property)
- Loan Amount Needed
- Income
Each loan program has different rules or guidelines that we have to follow when trying to approve your loan application. Our loan officers have the experience to help you navigate the available loan programs and suggest the best loan solution for your specific situation. Below is an overview of the most common loan programs and the characteristics of each.
FHA Loans
FHA loans are insured by the Federal Housing Administration (read about FHA’s history here). FHA loans remain the most flexible loans from a credit score, credit history, and down payment perspective. FHA is also the most common loan that is paired with down payment assistance programs. Here is a general overview of FHA loan characteristics:
DOWN PAYMENT:
3.5% of the purchase price (can be a gift from a relative)
MAX LOAN AMOUNT:
Depends on your county (See Limits Here)
UPFRONT MORTGAGE INS.:
1.75% of the base loan amount (can be financed)
MONTHLY MORTGAGE INS.:
1.35% annually* (for less than 5% down payment 30 Yr Fixed Loans)
1.25% annually* (for 5% or greater down payment 30 Yr Fixed Loans)
.70% annually* (for less than 10% down payment 15 Yr Fixed Loans)
.45% annually (for 10% or greater down payment 15 Yr Fixed Loans)
* – These options have MI for the life of the loan
Below is a summary of the waiting periods FHA requires for most major derogatory credit events:
BANKRUPTCY CHAPTER 7:
2 year waiting period from the date of discharge. An explanation is required.
BANKRUPTCY CHAPTER 13:
No waiting period required if Chapter 13 was completed successfully. If you are still in Chapter 13, you have to get permission from the court to proceed with a home purchase and you have to have been paying on the Chapter 13 successfully for 12 months or more.
SHORT SALE:
3 year waiting period from the date of sale. An explanation is required. There is an exception to the 3 year waiting period if you did a short sale and didn’t have any mortgage late payments prior to or during the short sale. Your other credit accounts also had to be paid on time. There are some additional caveats, so contact us if you think you might qualify for an exception.
FORECLOSURE:
3 year waiting period from the public trustee’s certificate of purchase. An explanation is required. There is an exception to the 3 year waiting period if you qualify under the FHA Back to Work program. Call us to see if you meet this exception.
VA Loans
Despite many common misconceptions, VA loans are one of the best loans available to veterans. There are a few situations where it makes more sense for veteran to get a Conventional loan, but that usually only applies when the veteran has a large down payment.
VA loans allow a veteran to purchase a home without having to come up with a down payment in most cases (jumbo VA loans being the exception). The guidelines allow the veteran to qualify with their spouse, but they cannot have someone that isn’t their spouse on the loan for qualifying purposes.
DOWN PAYMENT:
No down payment required (except for loans above the county limit)
MAX LOAN AMOUNT:
Depends on your county (See Limits Here)
VA FUNDING FEE:
2.15% of the base loan amount for First time VA buyers (can be financed)
3.3% of the base loan amount for Subsequent VA buyers (can be financed)
** – Reservists have a slightly higher VA funding fee (see here)
MONTHLY MORTGAGE INS.:
None
JUMBO VA LOANS:
These require the veteran to come up with 25% of the difference between the purchase price and the VA maximum loan limit for the county. In many cases this is still much less than if the veteran sought out typical non-VA jumbo financing.
VA guidelines give the underwriter quite a bit of discretion with regard to derogatory credit items like foreclosures, short sales, and bankruptcy. In general, below are the recommended waiting periods laid out by VA guidelines:
DERROGATORY CREDIT ITEMS:
VA guidelines generally require there to be 12 months of satisfactory payment history after the last derogatory credit item was satisfied. The guidelines specifically outline a situation where someone has a number of unpaid collections and describes the start date for the 12 month waiting period to be the date where all of the outstanding collections have been paid in full.
COLLECTIONS:
VA does not necessarily require isolated collection accounts to be paid, although the underwriter has discretion in determining whether collection accounts need to be paid. The underwriter will analyze whether or not the credit history meets VA guidelines and this could mean that the 12 months of satisfactory credit are not met if collection accounts haven’t been paid in full and a full 12 months of payments haven’t been made on time.
BANKRUPTCY CHAPTER 7:
2 year waiting period from the date of discharge is required. Situations where the bankruptcy is greater than 1 year but less than 2 years can be considered, but there are a number of variables to take into account. Contact one of our loan officers to see if you would likely fall into this provision of the guidelines.
BANKRUPTCY CHAPTER 13:
No waiting period required if Chapter 13 was completed successfully. If you are still in Chapter 13, you have to get permission from the court to proceed with a home purchase and you have to have been paying on the Chapter 13 successfully for 12 months or more.
SHORT SALE:
In general, a 2 year waiting period from the date of sale is required. There are some situations that would allow for consideration of a less than 2 year waiting period, but you should contact one of our loan officers to see if you have a situation that might be considered an exception to the standard 2 year waiting period.
FORECLOSURE:
2 year waiting period from the public trustee’s certificate of purchase. There are some situations that would allow for consideration of a less than 2 year waiting period, but you should contact one of our loan officers to see if you have a situation that might be considered an exception to the standard 2 year waiting period.
USDA Loans
USDA loans are insured by the United States Department of Agriculture. If you are buying in a rural designated area, USDA loans remain the best loan program available next to VA home loans. There are income restrictions and the property has to be in a designated area for it to qualify for USDA financing, but it is a great loan program for the properties and individuals that qualify.
You can see if your property qualifies by going here: Often the system cannot tell you whether or not a property is in a designated area, and then you have to look at where the property boundaries sit and determine whether or not the property is qualified.
Here is an overview of the USDA loan characteristics:
DOWN PAYMENT:
None Required
MAX LOAN AMOUNT:
Depends on your county (See Limits Here)
UPFRONT GUARANTY FEE:
2% of the base loan amount (can be financed)
MONTHLY GUARANTY FEE:
4% (calculated annually)
Below is a summary of the waiting periods USDA requires for most major derogatory credit events:
DERROGATORY CREDIT ITEMS:
No late payments in the last 12 months
BANKRUPTCY CHAPTER 7:
3 year waiting period from the date of discharge. An explanation is required.
BANKRUPTCY CHAPTER 13:
Must be completed and there has to be a 12 month satisfactory payment history following the completion of the Chapter 13.
SHORT SALE:
3 year waiting period from the date of sale. An explanation is required.
FORECLOSURE:
3 year waiting period from the public trustee’s certificate of purchase. An explanation is required.
Conventional Loans
Conventional loans are usually loans with 20% or greater down payments. There are conventional loans available with less than a 20% down payment, but these require private mortgage insurance. Most conventional loans are currently originated under Fannie Mae (FNMA) or Freddie Mac (FHLMC) guidelines. This enables them to be purchased by Fannie Mae or Freddie Mac after your closing.
As the current lending environment shifts, there will be a push by Freddie and Fannie to purchase less and less of the conventional loans being originated. For now though, the following guidelines are generally reflective of both agency’s guidelines (although there can be some differences between to two agencies guidelines in specific situations).
Here is a general overview of the guidelines:
DOWN PAYMENT:
5% of the purchase price (can be a gift from a relative)
MAX LOAN AMOUNT:
Depends on your county, but usually $417,000 in Colorado (See Limits Here)
MORTGAGE INSURANCE:
The type of mortgage insurance you go with on a conventional loan depends upon your selection as a consumer. In general there are two types of mortgage insurance that are most often chosen – Monthly Mortgage Insurance and Single Premium Mortgage Insurance.
Check out our Mortgage Insurance page that describes the types of MI available and the specifics of each option. Mortgage insurance rates change depending on your down payment amount and credit score. There are even differences in certain mortgage insurance rates depending on the MI company that your lender selects.
View our Mortgage Insurance information page here:
Below is a summary of the waiting periods conventional loans require for most major derogatory credit events:
BANKRUPTCY CHAPTER 7:
4 year waiting period from the date of discharge. An explanation is required.
BANKRUPTCY CHAPTER 13:
No waiting period required if Chapter 13 was completed successfully. If you are still in Chapter 13, you have to get permission from the court to proceed with a home purchase and you have to have been paying on the Chapter 13 successfully for 12 months or more.
SHORT SALE:
3 year waiting period from the date of sale. An explanation is required.
FORECLOSURE:
3 year waiting period from the public trustee’s certificate of purchase. An explanation is required.
3 Most Common Loan Types
- 1.
Conventional Loans
Conventional mortgages are best suited for borrowers with 5% or more in down payment and good credit. The guidelines are more restrictive than other loan types, but that generally correlates to better interest rates.
- 2.
FHA Loans
These mortgages allow for a 3.5% down payment and the guidelines are generally the least restrictive. FHA loans also continue to be the most common loan type paired with down payment assistance programs.
- 3.
VA Loans
VA home loans provide the best financing available for eligible veterans. Depending on the veteran’s eligibility there is no required down payment and there is no monthly mortgage insurance.
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Uptown Mortgage
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