The Different Types of Home Financing or Mortgages

• FHA - Federal Housing Authority Loan 

Targeted as the 1st time home buyer loan, but it is not limited to 1st time home buyers. If you are looking for buy a home to make your primary residence or "homestead", and don't have a lot of money to put down, this is an option for you.

What you will need is 3.5% of the purchase price in cash as a down payment, minimum credit qualification of 620 (some lenders can do sub-prime at 580). Interest rates are a little bit higher that conventional mortgage rates. You can ask the Seller to contribute a max of 6% of the sales price towards closing costs.

They also offer fixer upper loan options called 203k loans. They were created to help home buyers purchase properties that weren't perfect and give the buyer the opportunity to renovate the home as soon as they move in. The interest rate is .25-.75% higher than a standard FHA rate.

There is a quirk with FHA loans, the lender is mandated to get a certified FHA Appraiser to appraise/inspect a home. It's not a home inspection, but overview of the 4 main components of a home - roof, electrical, plumbing and structural integrity. If there is anything that the appraiser doesn't like as a investment risk for the mortgage, like a roof that doesn't look like it will last in the next 2 years, it can ruin the deal if neither the buyer or the seller can replace the roof prior to closing.

Also, with putting less than 20% down on a home usually means your mortgage lender will mandate mortgage insurance on the home. Mortgage insurance is just like it sounds, an insurance policy you pay for to protect the bank incase you default on the loan. This insurance payment is added to the cost of your mortgage and ranges based on the loan amount. Usually runs $100-200 for the average home. Before June 2013, this insurance would automatically drop off once you paid down your loan to the 78% of original sales price, and would typically be after 5 years of payments. Now, this mortgage insurance will stay on for the lifetime of a loan. This came about when Freddie and Fannie took a beating in the recession with short sales.

• Conventional Loans

There has been a new wave of new conventional programs with the changes in FHA loans. There is the traditional conventional loan where the Buyer puts 20+% on a home. There is no mortgage insurance and depending on the term of mortgage and credit, you will get the best rate. To give more option for Buyers facing lower down payments, lenders have 3% and 5% down conventional programs. No strict FHA appraisal guidelines, but there is mortgage insurance. Good news is, it follows the old rules where once a Buyer pays down to 78% of original sales price, the mortgage insurance is eliminated. To get these conventional loans, you have to be over 700 in credit scores and other details. Many people use conventional loans when buying investment properties. But you can only have 4 properties mortgaged at anytime. Which leads us to another mortgage type

• Hard Money/Private Mortgage

These lending options are not for the faint of heart. Normally, people who obtain these types of loans are not typical buyers. Usually they are investors who have portfolios too large for many banks to continue lending or Buyers who have bad credit but liquid or other investments that a private investor could make happen. Many times you need 30+% down and have higher interest rates that can be as costly as credit card interest. There are specific brokers in the area who have files of investors and can help make the right match.

• USDA - US Dept of Agriculture Loans

 You may think, what are the beef people doing? These loans are targeted in specific geographic areas - rural areas. You can buy homes, multifamily, and other loan programs for those living in targeted areas. Pinellas County doesn't have any eligible areas for this loan program. Most of Eastern Hillsborough, and parts of Pasco and Hernando are eligible. Click here to search by address and see on the map. You do not need to keep cattle or other livestock or have a farm. It does provide 100% financing for those who qualify.

• VA - Military Loans

These loans are governed by the Veterans Administration and is dependent on military service. Surviving spouses do qualify as well. You still use a mortgage lender who knows how to service these loans, but there are documents and underwriting specifics that need to be in place. Like an FHA loan, the VA backs your purchase and can insure the mortgage incase you default. The other benefits are: 100% financing, no mortgage insurance, limits on your closing costs, all of the closing costs can be paid by the Seller, no pre-payment penalty, qualify for additional VA options if repayment difficulties arise. Also, you don't have to be a 1st time home buyer, you can reuse this benefit, and another Buyer can assume the loan as long as they qualify.

• Jumbo Loans

This loan is for the higher end home Buyer that needs a mortgage over $417,000 depending on area. Most of the time, these home Buyers are buying property over $1 Million. In the past year, these loans have been seeing a re-surge. In the recession during 2008-2012, many lenders made the Jumbo loan extremely undesirable with outrageous interest rates or did away with them all together. The Buyer in a jumbo loan usually has to have good credit of 700+ and put down a larger down payment more than 20%. Therefore is no private mortgage insurance. But a Buyer will need to provide a lot of documentation showing assets and investments that can qualify. There is also a 2 appraisal processes on the house. This is to ensure the lender is not over  mortgaging on a large asset.

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