Finding the Best Loan Program for Your Specific Needs

Finding the Best Loan Program for Your Specific Needs

A Lid for Every Pot!

Guest Post by Tim Britt

Last month I talked about Affordable mortgage programs.  In an earlier article, I mused that there isn’t a “one-size-fits-all” mortgage program…and began a dialogue about three categories of mortgages:  Affordable, Specialty, and Traditional.  This month – we’ll tackle the Traditional Mortgage Programs and discuss their features and benefits, as well as the typical clientele for them.

Traditional Mortgages are loan programs that typically appeal to borrowers with established credit, with loans that offer both fixed and adjustable rates and terms.

The potential clients for Traditional Mortgages are those who can afford relatively larger down payments (> 5%) and have higher credit scores (FICO > 700).  The overall benefits include allowing a borrower to choose from a variety of options, from short-term ARMs (Adjustable-Rate Mortgages) to 30-year fixed rates and just about anything in between.  Interest rates and overall loan costs are often lower, (although not universally).

Traditional mortgages can be subdivided into 2 specific categories:

  • Conforming Loans – which conform to Fannie Mae (FNMA) or Freddie Mac (FHLMC) lending guidelines.
  • Non-Conforming Loans – which typically have loan amounts above the limits set forth by FNMA and FHLMC. These are also referred to as Jumbo

Conforming and Non-Conforming Loans fall under the Conventional loan classification…meaning that they are not backed by a government agency (as is the case with VA, FHA, and USDA Loans).  The main difference, however, lies in how these loans are securitized.  All Conforming Loans are securitized by either FNMA or FHLMC.  This basically means that lenders who originate these loans are re-capitalized by these agencies so that they can continue to originate new loans to maintain a robust housing economy.  The actual mortgages are bundled into Mortgage-Backed Securities (MBS) and used as investment instruments in the market.  When you hear the phrase “my loan got sold;” the element that is actually sold is the servicing, or the collection of the payment, rather than the loan itself.

Non-Conforming loans, however, are typically referred to as Portfolio products.  These loans are securitized by either the bank who originates them or a bank/investor who purchases them from the originator.  While the lending guidelines may mirror those of Conforming Loans, these products do not fall under the auspices of FNMA or FHLMC.

As mentioned above, the differentiator between Conforming and Non-Conforming is the Loan Amount.  Conforming loan amounts are established annually by the Federal Housing Finance Authority, and are adjusted geographically.  Areas with higher cost-of-living indices and higher housing prices have higher Conforming Loan Limits.

When the Loan Amount exceeds that limit, the Non-Conforming/Jumbo Loan Product is the available avenue for financing a home purchase.  I often refer to these as “boutique” loans, because there are many variations of them in the marketplace today, depending on the specific lender.  Each lender or investor is able to establish their own Credit, Income, and Asset guidelines for these loans based on their particular business or risk-tolerance model, although as I mentioned, many of them mirror the FNMA or FHLMC guidelines.

So – where do you start?

While there certainly isn’t a single loan program that fits every need, there is usually one that will best fit your specific needs…or, “a lid for every pot!”  If you feel like a Traditional Mortgage Program may best fit your needs – give me a call and I’ll be happy to sit down with you and discuss the features and benefits of each, and help you choose the one that may be best-suited for your particular situation.

 

 

 

Tim Britt is a Senior Mortgage Loan Officer (NMLS 1369718) with Fifth Third Bank in Franklin, TN.  He can be reached at 615-415-8887 or [email protected].  The statements or opinions expressed are Tim’s own and do not necessarily represent those of Fifth Third Bank. window.dojoRequire([“mojo/signup-forms/Loader”], function(L) { L.start({“baseUrl”:”mc.us13.list-manage.com”,”uuid”:”b3560441a030ec3ce9b8bfb77″,”lid”:”4f35c52094″,”uniqueMethods”:true}) })

The Mystery of the Credit Score… Part 2!

The Mystery of the Credit Score… Part 2!

The Mystery of the Credit Score… Part 2!

Guest Post by Tim Britt

Last month, we began the conversation about Credit by discussing the Mystery of the Credit Score.  As I mentioned, the numerical score is only half of the story!  This month, we’ll talk about, as Paul Harvey would say “…the rest of the story!”

In addition to the score, a borrower’s Credit History can also be a determining factor in qualifying for a particular home loan program, or if they qualify at all.  When a credit report is generated, the borrower’s history of credit usage is reflected on that report.  Keep in mind that this history may continue to report for up to 10 years or more.  This history includes:

  • Credit Accounts (open or closed)
  • Date(s) accounts were established
  • Last Activity Date
  • Credit Limit/Balance/Minimum Payment
  • History of Late Payments
  • Public/Private Liens or Judgements
  • Bankruptcy/Foreclosure/Short Sale
  • Any Accounts in Collection (past or present)

The numerical score is the first indicator of qualification for a mortgage loan, however; certain derogatory events may disqualify a borrower whose score otherwise meets the minimum requirements for a particular program.  The severity and timing of these events will determine how they impact qualification.  Here are a few examples that may preclude qualification for someone who may otherwise meet the minimum numerical score guidelines.

  • Housing Payment History: Some loan programs (e.g. Conventional) will not allow any housing-related late payments (mortgage or rent 30 days late or more) within the last 12 months.
  • Revolving Charge: Accounts with late payments more than 60 days late, or in some cases, a single account with a 30-day past due can be disqualifying.

Other Examples Include:

  • Nonpayment of Child Support
  • Bankruptcy
  • IRS Tax Liens
  • Public Judgements
  • Foreclosure, Pre-Foreclosure, Short Sale, or Deed-in-Lieu Actions
  • Open or Closed Collection Accounts
  • Delinquent Student Loan Accounts

While the above list is not all-encompassing, there are many cases where a client may have a qualifying score for a particular loan program, but one or more of these derogatory events will preclude mortgage approval.  Not to worry, though…it’s not a life sentence!

In most, if not all cases, there are either “waiting periods” or rehabilitation plans whereby a potential borrower can remedy the disqualifying event and eventually put them into a position to qualify and purchase in the future.   In some instances…Bankruptcy, for example:  simply shifting loan programs from Conventional to FHA may reduce the waiting period and possibly allow for qualification.  With IRS Tax Liens, establishing a payment plan and making the first payment may satisfy that requirement.

In many instances, clients aren’t even aware of derogatory information on their credit report until they apply for a mortgage.  It’s this reason that I encourage everyone, once a year, to get a free copy of your credit report from www.annualcreditreport.com.  This site is jointly owned by all 3 of the major credit bureaus, and is the only source of information authorized by Federal Law.  While this report will not produce your numerical score for mortgage qualification, it will provide all historical information reported to the credit bureaus and enable you to ensure you’re not a victim of fraud, identity theft, or errant reporting by a creditor.  It will also reflect any public information (liens, judgements, etc.) reported by other agencies or municipalities to the bureaus.

To wrap up this topic – think of your credit history as one of your most important assets!  The information contained therein can be of tremendous value, or detriment…not only for mortgage qualification, but in some cases, even for future employment.  Know where you stand, and protect yourself by knowing your credit history!

Tim Britt Supreme Lending

 

 

Tim Britt is a Senior Mortgage Loan Officer (NMLS 1369718) with Fifth Third Bank in Brentwood, TN. He can be reached at 615-415-8887 or [email protected].

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