Finding the Right Mortgage Loan
There are several steps involved in finding the right mortgage loan. The first step is to find out, which loans are possible for your situation. Then look at your needs and payment comfort and qualification. We will look at the right loan based on a set of questions and show what the answers in relation to the right loan.
Question 1: Are you a Veteran of the U.S. armed services, National Guard or U.S. Coast Guard who was on active duty at least 181 days and discharged by something other than dishonorable?
Answer 1: If your answer is yes, you have not used up your VA eligibility, and your loan amount is less than $417,000, then a VA loan is your first option. Don’t use this option if you plan to put 20% or more down payment though.
Question 2: Do you live in a town of less than 10,000 or in a rural area?
Answer 2: If you do, and your income is less than 115% of the median income for the county you live, you should look at this option. Click Here to go to find the USDA maximum income limits for your area. Your loan limit is the same as FHA limits in the county you are buying a property. You can search your county maximum loan amounts at: https://entp.hud.gov/idapp/html/hicostlook.cfm. This maximum limit is usually $271,050.
Question 3: Are you looking for a loan of $271,050 or less or less than the FHA maximum limits in the county you are buying or refinancing?
Answer 3: If you are looking for a loan in the FHA limits and are not putting 20% or more down payment, do not qualify for a VA loan or have 20% or less equity in the house for a refinance, then an FHA loan is a good choice. For FHA loan limits visit: https://entp.hud.gov/idapp/html/hicostlook.cfm.
Question 4: How much loan can you afford?
Note: that these calculations use standard ratio calculations and the loan you qualify for may be higher or lower than this amount based upon the Automated Underwriting System (AUS) approval.
Answer 4: An excellent mortgage calculator you can use to help determine the mortgage you can afford is http://mortgages.interest.com/content/calculators/afford-borrow.asp. Make sure to input the taxes and insurance for your area. Also make sure that the payment figured is comfortable for your particular circumstances.
Question 5: Is the mortgage you are seeking above the FHA limits and below $417,000?
Answer 5: Then a Conventional Conforming loan (Fannie Mae or Freddie Mac loan) is you next best option.
Question 6: Is the loan you are seeking above $417,000?
Answer 6: Recent changes from the Economic Stimulus Act of 2008 allows Fannie Mae and Freddie Mac to offer Jumbo-Conforming loans in some areas of the country. To see if you meet these limits over $417,000: https://www.efanniemae.com/sf/refmaterials/loanlimits/jumboconf/. If you don’t meet the limits over $417,000, then you will need to get a Jumbo or Non-Conforming loan.
Question 7: Can you verify all of you income information via W-2 or income tax (Your Gross Adjusted Income on the bottom of the first page of your income tax return)? Can you verify your down payment for the last three months in your bank and/or stock accounts?
Answer 7: If you can not, you may have to qualify for a Alt-A loan.
Note: a general rule is that the more you can verify the lower the interest rate terms.
Note 2: Some states are now making these loans either very hard or illegal to obtain.
Question 8: How long will do you plan to live at this location or keep this house?
Answer 8: If you plan to live there less than 5 years (in some cases 7 years), you might consider an ARM loan of equal duration. (i.e. If you plan to live in the house three years a three year Arm would be best, etc.). Also the start rate should be at least 2% BELOW the current fixed rates to consider this, just in case you stay longer than expected.
Question 9: How much down payment or equity do you have?
Answer 9: If you have 20% or more down payment or equity, a Conventional Conforming loan (Fannie Mae or Freddie Mac Loan) is the right one for you unless the loan amount is greater than their limits of $417,000, then a Jumbo loan will be required.
Loans to avoid:
1. Pay Option ARM Loans – These loans are for sophisticated borrowers only. Many people are suckered in to the low negative amortization payment, which makes the balance of the loan go higher. Don’t get suckered in to this loan.
2. Loan with a pre-payment penalty – This will not allow you to refinance if your credit status has improved, interest rates have decreased, or you have to move without a large payment to pay it off. This is illegal in some states and currently the Federal Reserve and the Office of Comptroller of the Currency is looking into this.
3. Sub-prime loans – Work on repairing your credit before you get a loan. FHA loans can offer loans to nearly sub-prime standards. Once you are in one of these there is a high likelihood that you will not improve your status.
4. Getting a 2/28 and 3/27 loans (mostly sub-prime and Alt-A). These loans after the fixed payment period of 2 or 3 years can increase by more than 6% above your starting payment. ]
Any loan that is not right for you or that you feel uncomfortable about the payments.
