What Are My Mortgage Options?

Common Loan Products

You may have heard of these common loan programs: Conventional, VA, FHA, USDA, ARM (Adjustable Rate Mortgage), and Jumbo…but what do they mean?

Conventional

The conventional mortgage is the most commonly used loan program for borrowers with good credit and steady income and can be used for purchasing a primary residence, second home or rental property. Conventional loans do require a down payment that can be as low as 3% of the purchase price of the home. PMI, or private mortgage insurance, is required when the down payment on the home is less than 20%. After 20% equity has been built up, the loan becomes eligible to have PMI removed.

VA

In 1944, near the end of the second World War, President Franklin D. Roosevelt enacted the Servicemen’s Readjustment Act. This is what we know today as the GI Bill of Rights. This act provided veterans with a federally guaranteed home with no down payment. For millions of veterans, this gave them and their families an opportunity to realize the family dream of home ownership.

A VA loan, formally known as a Veteran Affairs loan, is a mortgage loan in the United States guaranteed by the US Department of Veteran Affairs that is designed to offer long-term financing to eligible American Veterans in order to help secure housing. VA loans are available for the primary residences of Veterans, active duty members, certain surviving spouses, certain Reservists, and National Guard members, and provide excellent benefits for those who are approved.

As a thank you in advance for those who are currently on active duty, retired military, or eligible reservists, this loan program offers veterans a 0% down payment! The VA loan is guaranteed by the Veterans Administration and is government-insured. Rather than having a monthly mortgage insurance fee, this loan program has a VA funding fee that is calculated into the initial loan amount. For borrowers who are considered disabled, the VA funding fee is waived entirely.

VA Loan Overview

The loans are guaranteed by private lenders which include banks and mortgage companies. As long as the veteran is eligible to purchase the home, which is required to be for their own personal occupancy, the lender is protected against a loss if the loan is not repaid. This is why no down payment is required and the veteran and his or her family can obtain very favorable financing terms.

If you are a veteran and you want to apply for a VA Loan, what is your next step? The answer is to follow the normal steps of home buying and that is to get preapproved from a mortgage lender such as Alpha Mortgage. We will help determine your credit rating, and your debt-to-income ratio and go through the process of helping you understand what your monthly costs might be. This will give you a solid understanding of what you can afford. Once we have determined what you are preapproved for, we will have a clearer understanding of how much you will need from your VA Loan.

The maximum guarantee authorized by the VA is 25 percent of the loan amount up to $104,250 and the maximum VA home loan is $417,000.

If you are looking to refinance, a VA Loan can help with that as well. Be sure to ask your Alpha Mortgage Mortgage Loan Officer about the Streamline Refinancing Program. If you qualify you may be able to refinance at little or no expense.

Here in eastern North Carolina, we are extremely lucky to be surrounded by so many of our nation’s finest soldiers who never hesitate to put their life on the line to protect ours. Our appreciation for the men and women of this country runs deep and at Alpha Mortgage we will work as hard as we can to make sure any military family can realize their dream of home ownership. Whether you are a member of Pope A.F.B., Seymour Johnson A.F.B., Fort Bragg, Air Station Elizabeth City, National Strike Force, Camp Lejeune, MCAS Cherry Point, or MCAS New River you may qualify for a VA Loan and we will help make the process as simple and easy as possible.

Benefits of a VA Loan

Benefits of getting a VA loan include equal opportunity, little to no down payment, no monthly PMI, home appraisal and reasonable value calculated, negotiable interest rate, reasonable closing costs, assistance to borrowers, and the ability to finance the VA funding fee.

The US Department of Veteran Affairs doesn’t directly fund the loans through the program but instead backs them from private lenders such as banks and mortgage companies, which is why Alpha Mortgage can provide VA Loans to those who qualify in North Carolina with more favorable loan terms than they may normally receive.

In order to apply for a VA loan in NC, there are a few preliminary steps one must take in order to reach the application process. The first thing you will need is a Certificate of Eligibility that one obtains from the VA. A Certificate of Eligibility (COE), provides lenders with the evidence that they need to determine if one is qualified to receive a VA loan. As stated on the official website, “The evidence you need depends on the nature of your eligibility.” They provide a table to reference during this process here. It is important to make sure that all of the qualifications

The higher your credit score, the lower your interest rates will be, and vice versa- The better your credit score is, the more banks and lenders can trust you, resulting in much lower interest rates for loans and mortgages. Don’t think interest rates are that big of a deal? Consider this- for a long-term credit loan such as a mortgage, interest alone can add thousands of dollars to your original buying price. Ouch.

From all of us here at Alpha Mortgage Corporation, thank you for your service!

FHA

FHA stands for the Federal Housing Administration which is part of the U.S. Department of Housing and Urban Development. The FHA was created as part of the National Housing Act of 1934. The FHA insures loans made by lending organizations such as banks and private lenders for the purpose of building or buying a home. It also works to improve housing standards and conditions and to help keep the mortgage market stabilized. Home buyers all throughout North Carolina have been utilizing FHA loans for decades.

What is an FHA Loan?

This is a loan provided by an FHA-approved lender such as Alpha Mortgage, that is secured by Federal Housing Administration mortgage insurance.  This program is a way that our government is helping citizens who are in a lower income bracket and might not otherwise be able to obtain a mortgage loan.

Insured by the Federal Housing Administration, the FHA loan requires a down payment as low as 3.5% and comes with a maximum loan amount that is determined by the location of the property. The FHA loan is helpful to borrowers who may have a higher debt-to-income ratio and allows for less-than-perfect credit. The FHA loan program does require PMI or private mortgage insurance.

FHA guidelines provide substantial credit flexibility and other benefits to borrowers. FHA loans are not credit score driven. Instead, they are written in a way that provides the borrower the benefit of the doubt that there had been, at some point in their past, circumstances beyond their control, and as long as the borrower has recovered from those circumstances in a reasonable manner, they’re generally going to be credit-eligible for an FHA loan.

Do I Qualify for an FHA Loan?

At Alpha Mortgage we are going to work closely with you to find out which mortgage program is best for you.  If that happens to be an FHA loan then we will help you through the prequalification process.  This will include providing your employer’s name and address and demonstrating that you have held a steady job for two years or more with the same company or employer without a decrease in income.  You will also need to provide the amount of your Gross Monthly Salary and if you have held multiple jobs over this period, provide W2s for all of them.  If there are any foreclosures with your name attached, at least three years need to have passed (this applies to bankruptcy as well).   You will also need to provide the addresses of where you have lived in the past two years.

If you cannot locate a copy of your W2s, do not hesitate to contact your employer for assistance.  You can also order a replacement copy from the IRS’ website.  If this all seems overwhelming, that is what your Alpha Mortgage loan officer is here for.  They are your trusted source you can turn to who will guide you through the process.  With Alpha Mortgage you are never alone.

Guideline Information

The FHA guidelines are forgiving about circumstances that many other lending programs, including conventional, are not favorable towards.The FHA states that a borrower, recovering from a Chapter 7 bankruptcy, can be eligible for an FHA loan two years after being discharged. An exception can be made after 1 year if the bankruptcy was due to extenuating circumstances that can be documented and are not likely to recur.

To be eligible for an FHA loan after a foreclosure, a three-year wait time is required after being discharged. An exception to the 3-year rule can be made if the foreclosure was due to extenuating circumstances that can be documented. If the borrower has filed for a Chapter 13 bankruptcy or is in a consumer credit counseling program (where the borrower has re-established a negotiated repayment term based on their credit items), and has been on the plan for 12 months making consistent payments on time, the borrower will be eligible for an FHA loan.

Automated Underwriting: Capability to Reach Higher Ratios

Automated underwriting is a valuable tool that allows you to qualify borrowers at higher ratios, therefore allowing them to buy a larger home for the same amount of money, combined with low-interest rates available through the FHA. However, it is not available to most high LTV first-time home buyer loan programs, such as the emerging markets national program and other programs from non-conforming lenders.

If the borrower has a clean credit profile and decent asset reserves, it is not uncommon to see debt-to-income ratios as high as 50%, or higher, approved through an automated underwriting system for FHA-insured loan programs.

Great Rates and Low Monthly Mortgage Insurance

A distinct advantage of an FHA-insured loan, as compared to a conforming loan, is great interest rates and lower monthly mortgage insurance (MI). Depending on the lender, standard FHA loan interest rates are usually better than a conforming 30-year fixed loan. Also, the mortgage insurance premium on any FHA loan is only .05% per year, with the exception of 15-year loans with less than 90% LTV that have only a .025% annual MI premium. Compared to a conforming loan, this is substantially less expensive than most of the high LTV conventional programs in which the mortgage insurance and premium could be as high as 2.87% per year.

Adjustable Rate Options

FHA guidelines give you the option of doing hybrid Adjustable Rate Mortgages (ARM), including a 3/1 ARM and a one-year ARM that has the lowest adjustment caps of any ARM in the industry. Both the FHA hybrid ARM options and the FHA one-year ARM options have interest rate adjustment caps of 1% per year and 5% over the life of the loan compared to standard conforming loans in which the caps are usually set at 2% and 6%, respectively. They also tend to have a much lower margin compared to the standard treasury ARM options. The loan margin in a conforming loan is usually 2.75%, whereas FHA loans generally have a 2% margin depending on the lender and program.

Property Types Allowed

Another advantage of an FHA loan program is the variety of properties that can be used. While FHA Guidelines do require that the property be owner-occupied (OO), they do allow you to purchase condos, planned unit developments, manufactured homes, and 1–4 family residences, in which the borrower intends to occupy one part of the multi-unit residence.

Streamlined Refinance and Assumable Loans

One of the most important advantages of an FHA loan is the ability for the loan to be assumed. This gives the buyer a significant advantage in a high-interest rate market in that anyone qualifying for a loan through their existing lender could come in and assume liability for the loan and replace the borrower as the owner of the property.

FHA loans are eligible for streamlined refinance, a program HUD offers that allows the borrower to easily refinance the loan to reduce their interest rate and lower their monthly payment. As long as they are current on the loan, they are generally eligible for a streamlined refinance with no additional credit, income, or asset documentation required. This feature makes it very easy to refinance an FHA loan.

Greater Flexibility on Refinance, Both Cash Out and Rate & Term

In October 2005, HUD issued Mortgagee Letter 05-43 which extended the FHA guidelines to allow cash-out refinances up to 95% of the appraised value in certain circumstances. However, all rules for the standard program of 85% remain if the borrower does not meet the extended criteria. To qualify for a 95% cash-out FHA loan the following conditions must be met:

• The borrower must have owned the property as their primary residence for the previous 12 months
• The borrower must have paid any existing mortgage on time for the previous 12 months
• Property may be a 1- or 2-unit dwelling only
• Any existing second mortgage must subordinate to the new first (CLTV is not considered an issue).
• Occupant borrowers must qualify on their own merit (non-occupant co-borrowers may not be used to qualify).
• Meet any additional qualifying restrictions of the funding lender (i.e., lender-imposed minimum FICO requirements of 620)

In addition, FHA guidelines treat the refinance of seasoned second liens (in place over 12 months) as if they are rate and term refinances. This allows for first and second liens to be combined in a way that conforming guidelines stopped allowing in 2004.

Another great refinance advantage of FHA is that they do not care about CLTV in the case of a full qualifying refinance. As long as the first mortgage LTV is within FHA limits and the existing second will subordinate, the CLTV does not matter. So in this case you could literally close a loan that has an LTV of 97.75% with a CLTV of 130% or more. However, in practice, it is rare to find a 2nd mortgage holder whose guidelines allow such a high CLTV.

USDA

The USDA loan is insured by the US Department of Agriculture and is offered if your potential property is located in a USDA acceptable rural area. One of the benefits of the USDA loan is that it offers 0% down payment. Check here for USDA eligibility and income limitations.

Jumbo

The Jumbo loan is meant for loan amounts exceeding $453,100. In order to qualify for the Jumbo loan, borrowers must have a higher credit score.

Here at Alpha Mortgage, we’re proud to be North Carolina’s #1 mortgage company. Contact us today to make owning your dream home a reality.

Reverse

It’s no surprise to anyone when we say that the aging process is a difficult thing to handle financially. There are a growing number of seniors planning to retire soon that are struggling to figure out how they will continue to pay their mortgage, maintain their standard of living, and pay medical bills, make home improvements, etc. for many reasons. For many seniors, their home is their largest and most lucrative cash asset- and could be the golden answer in helping to solve their financial worries post-retirement. Enter reverse mortgages.

What is a Reverse Mortgage?

According to the HUD, “A reverse mortgage is a special type of home loan for homeowners 62 years or older that lets you convert a portion of the equity in your home into cash. Unlike a traditional home equity loan or second mortgage, HECM borrowers do not have to repay the HECM loan until the borrowers no longer use the home as their principal residence or fail to meet the obligations of the mortgage.” Borrowers are still responsible for property taxes, homeowner’s insurance, and property maintenance, but a reverse mortgage requires no monthly mortgage payments, and borrowers do not have to pay back their loan balance until they die, sell, or move.

The interest and fees on the reverse mortgage are added to your loan balance each month. Over time, your home equity will decrease as your loan balance grows. It’s the reverse of a traditional mortgage. The rising loan balance can eventually grow to exceed the value of the home, however, as the borrower (or the borrower’s estate) you do not have to repay any additional loan balance over the value of your home, Wade Pfau of The American College and McLean Asset Management highlights what consumers need to know about repaying a reverse mortgage with tips such as “Prior to death, selling, or moving, repayments can be made voluntarily at any point to help reduce the future interest due and to allow for a larger line of credit to grow for subsequent use. There is no penalty for early repayment.”

What is the HECM for Purchase or H4P Program?

The H4P mortgage allows homebuyers to receive funds from their lenders to finance approximately 50-60% of the purchase price of their new home. They are then freed from having to make regular payments after purchase, although they will be responsible for ongoing property taxes, homeowner’s insurance and home maintenance. Repayment is not necessary until the last surviving homeowner is no longer living in the home as their primary residence – either from selling or vacating the property or passing away.

So what’s the catch? You must be eligible for a federally insured H4P reverse mortgage. This includes being 62+ years old, be able to make a sizable down payment and finance the rest. Here are some further requirements needed to qualify for this safe program:

• A financial assessment to determine suitability.

• Reside in the home for more than 6 months of each year.

• Participate in a homeownership counseling session.

• No minimum credit score is required.

• Federal debt including back taxes must be paid.

• H4P is a first mortgage on title at time of closing.

• Why H4P? H4P provides you with the financial security you’re looking for in retirement. It provides flexibility, with NO monthly payments required. This will allow you to increase your reserve funds and liquidity. H4P also protects your heirs and is FHA insured, giving you peace of mind!

The amount of funds available will depend on your purchase price, age, and interest rate.

Why Would I Get a Reverse Mortgage?

Reverse mortgages can be used strategically for many reasons. One of the biggest reasons that people take out a reverse mortgage is to stay in their current home without having to worry about their current mortgage payment.

Many people also open a line of credit with access to the cash over time to supplement social security, 401k, unexpected costs, or unexpected medical costs. People also use reverse mortgages to pay off existing mortgages, purchase a new home that better suits their needs with age, or as retirement income plans.

Which Loan Program is Right for Me?

When purchasing a new home, a little research can go a long way. Asking the right questions will help us identify the right program that meets your needs.

• Are you a first-time homebuyer?
• Are you active or retired military?
• Where is your future home located?
• Which government programs do you qualify for?

How to Choose Between a 15 and 30 Year Mortgage

So you’ve found your dream house, and have decided to start the lending process so that you can own the keys and start making it a home. Congratulations! Once you’re sure that you can afford the home and have found an informed and transparent loan officer, the next thing as a buyer that you need to consider is whether you should choose to secure a 15-year fixed mortgage or a 30-year fixed mortgage.

Weigh the Pros and Cons

When determining which loan option is best for you, it is important to weigh out the differences in affordability, your degree of job security, as well as your saving habits.

The main difference between a 15 and 30-year loan is that fifteen-year loans typically have higher monthly payments with less interest, and thirty-year loans usually have lower monthly payments in which you end up spending more interest over time.

The first step in determining which term to choose is using a mortgage calculator and crunching the numbers to figure out your specific individual options and the difference in monthly payments and the total amount spent. Then, ask yourself what you can honestly afford. If you can comfortably make the 15-year fixed mortgage rates, do so. If not, the 30-year option is probably best for you. Remember that making extra payments when possible is always an option (although according to the FDIC, 97.3% of people do not consistently pay extra on their mortgages).

It is also essential to evaluate your job security and emergency funds when determining which loan to choose. Are you in a position/job with a paycheck steady enough to make those payments every month?

It is important to remember that once you sign the loan, you will be required to make the same payment each month, and if you choose to go with a higher monthly payment (15-year loan) it is a good idea to have an emergency fund in place just in case something happens. If you don’t have adequate savings in place, or lack an emergency fund, it is a safe bet to go with a 30-year option.

Financial saving habits are also important to consider when determining whether to go with a 15-year or 30-year loan. Before choosing which term you want to have your loan on, evaluate your spending habits. According to USA Today, many people may lack the discipline needed to save long-term, especially in amounts that would offset what they would save by switching (from a 30-year) to a 15-year mortgage.

A lot of times people need that extra money for something else, so they choose to keep their money in a 30-year mortgage with lower individual monthly payments. It is important to realize that you can always pay more of your mortgage off monthly, however, many people lack the discipline to send in the extra money every month when it isn’t required by the bank.

If you are confident in your financial and personal discipline and do not tap into your savings (or will need to in order to afford a shorter term), a 15-year loan might be a good option to consider.

Be sure to consider your age and professional plan for the next 15-30 years when deciding whether you want to choose a 15 or 30-year loan. Are you planning on retiring? Do you plan on having children? What about other expenses that you will have (car, student loans, etc.)? Once again, it is important to answer these questions as honestly as possible and to go over your options with your loan officer, who will be able to give his/her honest opinion based on individual circumstances and plans and which term will be best in your scenario.

Remember – in the end, your individual financial situation, goals, and comfort levels will determine which mortgage term you should choose, and what may be right for someone else doesn’t necessarily mean it will be right for you. However, a good rule of thumb remains: if you’re comfortable making higher payments (and have an adequate emergency fund), can meet other important financial milestones such as retirement and large expenses like cars and student loans, and have strong personal discipline when it comes to finances, a 15-year mortgage is a great option to own your home in half the time you would otherwise. If any of these conditions make you uncomfortable, it is better to go with the 30-year fixed loan and add in extra payments if you can.