Category Archives: Mortgage Info

How to Decide: Condo or House

For many, owning real estate is the American dream. It affords you the opportunity to personalize your living space and feel connected to the community. By owning a home, you invest in the local activity, the block parties, and neighborly barbeques. You offer support to your neighbors and they, in return, offer support to you. Need a cup of sugar, dog sitter, or help with your gardening (especially advice on the age old debate: lawn gnome vs. plastic flamingo)? Take comfort in knowing that good neighbors will always be there for you. Most of all, owning real estate is a way to invest in your future. No matter where you go, your home will always give you a sense of rootedness, pride, family, and in most cases, a return on investment.

When it comes to home ownership, the three most common types of property are the condominium (aka condo) and the single family detached home (aka house). Below we will discuss the pros and cons of each.


Here are a few pros about owning a house:

1. Ability to modify the home. You can increase your properties value by adding an additional bedroom, renovating / knocking down walls for an open concept, or turning your half bath into a full bath.

2. Freedom to decorate as you wish. You usually have the ability to decorate the exterior of the property as you wish.

3. Increase financial opportunity. You can subdivide the property (if the regional zoning allows for it).

4. Larger personal space. Houses usually have a back yard that is not shared.


Here are a few cons to owning a house:

1. You are responsible for all maintenance. For example, every few years, you should perform a termite inspection and make the appropriate repairs. The exterior will need to be painted (unless you have vinyl siding). Roofs, water heaters and other items wear out over time and need to be replaced. Even if your home is brand new, you will still be responsible for cutting the grass and cleaning out the rain gutters.

2. Easements. It is possible for utility companies or even the government to place an easement on a property without your consent.

3. Larger expenses. As a house owner, there is no other household to share the expenses with.


Owning a condo can also give you a sense of pride and family without the headache of regular upkeep. In most cases, depending on the Home Owners Association, you don’t have to worry about cutting the grass, or keeping your yard free from debris, painting the exterior, plumbing repairs and the like. The HOA does the upkeep for you. Here are a few pros about owning a condo:

1. You’ll enjoy the advantage of shared expenses. Depending on what your HOA covers, you will have little to no direct out of pocket expense for exterior maintenance costs. Any exterior costs you do have are usually shared.

2. Affordability. Because a condo typically costs less than a single family house, a condo will save you money. Also, because there are shared expenses, the overall cost will be lower than what a person would pay if there were no other owners.

3. Amenities. Many condos have swimming pools, rec rooms, barbeque pits and fitness centers. Some even have movie theatres, cooking classes, valet parking, saunas and other perks.

4. Reduced utilities. For example, your condo may cover exterior home owners insurance; water, trash, sewer, and cable. Not having to worry about budgeting for those extra expenses, makes condo living advantageous for people who like to keep it simple. In addition to making budgeting simple, the HOA will usually be able to get services discounted and the overall cost (on an individual basis) is lower.

5. Uniformity. A well maintained HOA will help your condo will retain its value. You don’t have to worry about your neighbor’s curb appeal affecting your property value.


Here are a few cons about owning a condo:

1. If your condo has a HOA, you may be limited on exterior changes.

2. Without With only fractional ownership of the land, your estate will be worth less than a single-family home.

3. Potentially, you will have less privacy.

4. Inability to make improvements. Usually when you own a condo, you cannot add bedrooms or subdivide the property.


In the end, it all comes down to how much time, energy, and money you plan to invest in your home and future. Do you know which option you’ll choose? That’s great. Now, it’s time to consider how you’ll finance one of life’s most important expenses. To find out how much you qualify for, begin the loan application.

Alternative Income & Federal Home Loans

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Are you on a traveling production crew for a TV show? Your income is still good!

If you are self-employed or sub-contracted, you have a unique situation versus those who are traditionally employed. You likely use a 1099 to file taxes, and sometimes, do not receive pay stubs. Despite these differences, self-employed and sub-contracted Americans can still qualify for an FHA or USDA home loan.

The rule of thumb is that your income has to have been stable for the past two years with no earning declines of 20 percent or greater for long periods of time. If your job has changed more than three times in the past year, you should be prepared to be asked for documentation in order to hopefully get you approved.

Your overtime, bonus, and commission income may be able to be counted as well. This money will need to have been consistent over a period of a year or more, and documentation will be required.

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Do you drive for services like Uber or Lyft? Your money still counts!

If you work part time, you also can get a federal home loan, but only if you have worked in the same industry for two years and have had stable income that will be averaged out by the lender. What if you receive support from the state, retirement, a former spouse, or a parent?

If you have been receiving child support or alimony over the past 6 months or more, you can use it towards income if proper documentation supports what you take in. Any child support or alimony you pay will be considered when your Debt to Income ratio is calculated, but it will not necessarily stop you from getting a home loan.

If you receive disability, this can also be counted as income. You will need to supply the most recent award letter from whoever pays the disability, especially if it is the VA.

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Are you retired, but wanting a home? Your pension counts as income.

Money from a pension, 401k, TSP, or IRA will be counted as assets. If you are already retired and are using this money to support yourself, that money will be regarded by the lender as appropriate.

If you are being gifted funds from a donor towards your down payment or closing costs, the lender will ask you to provide corresponding documentation. A bank statement from the donor showing they took those funds out in order to give them to you will likely suffice.

Federal Home Loan Centers is ready to handle your unique lending situation, get you pre-approved, and answer your home loan questions. Please contact us at 877-432-5626(LOAN).

Single, Married & Kids – How it Effects a Pre-Approval

During the process of trying to get a pre-approval for a home loan, you will be asked some basic questions. A few common and connected questions are all relative, no pun intended.


What is your marital status?

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Marriage is beautiful, but it can either help or hinder you when getting a home loan.

If you are married, you will be asked if you want your spouse as the co-borrower if you have a conventional, VA, USDA, or FHA home loan. If you are living in a community property state, your spouse will automatically be included on the loan, whether you want them to be or not.

If you live in one of the following states, your spouse will be included in the application, and if they do not have a social security number, or they have a poor credit score, they can prevent you from being qualified. These community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Wisconsin, and Washington State (where Seattle is, not where Washington DC is).

One of the good things about having your spouse on the loan is if they are making a good income, this will increase your overall Debt to Income (DTI) Ratio if your income is combined and you are sharing current financial responsibilities. Also, if your spouse is receiving any external financial support (disability, social security, alimony, etc.), it can be counted as income towards being qualified for a loan.

If you are only engaged, you can still list your soon-to-be spouse as a co-borrower on the USDA and FHA home loans. The only time you can list a fiancée as a co-borrower for the VA home loan, when you are not yet married, is if you both served enough military time to qualify. If you are in a community property state and about to go through a divorce, a good lender should still be able to help you – you just need to clarify your situation and may need to provide a letter of explanation.


Do you have children?

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Paying child support, or receiving it? The difference can be crucial when a lender evaluates your loan application.

If you have dependent children, this will be a factor to consider when approving a family for a loan. You won’t necessarily be asked how much you pay to take care of the kids (except if you pay child support), but for any loan, whether children are involved or not, you will be asked for information on the rent you pay currently and any savings you have put aside.

If there is going to be an instance of payment shock, AKA a mortgage causing the family’s cost of living to go up by a drastic amount, then this combined with the fact a couple has children along with no assets put aside can result in a denial. A good lender will not put the family in a poor situation in which a mortgage cannot financially be handled, at this time.


Are you paying child support or alimony, or receiving it?

As previously brushed upon in the section on marital status, the receiving of child support and alimony is helpful you when getting approved for a home loan. It shows, when you receive it, that you are getting assistance with your bills, and your DTI will be positively affected. You will be asked for supporting documentation showing how much you get and for how long this support will take place.

Paying child support or alimony will not necessarily prevent you from getting a loan. It will depend on how much you take in for income and how much you already spend on monthly obligations, then this income will be paired up with the support you provide.

What’s a good indicator if alimony or child support will prevent you from being pre-approved? Take your gross monthly income, AKA what you receive before taxes are taken out, then subtract any rent paid, any loans you pay monthly, and then the child support or alimony, where applicable. If you end up with less than forty percent of your income being disposable, it may give you a poor outcome in getting approved, but it is always a case-by-case situation.

At Federal Home Loan Centers, we’re the best source for helping you find the bright side of any financial situation. Call us at 877-432-5626(LOAN) or tweet us at @FedHomeLoan to see if we can get you approved!

Why a Credit Pull is Necessary

credit pull 2We have things in life we do not like doing, but we must. For some, it’s eating our veggies and for others, it’s going to the doctor. When you’re getting a loan, doing a credit pull is on top of most people’s “dislike” lists.

From the many calls we get per day for new loans at our office, we have at least one person hang up because we tell them a credit pull is necessary. The disputes we get in return are that they know their credit scores from sites like CreditKarma, or they think it’s going to be a scenario like the funny Experian commercials where the consumer knows their score through one bureau and uses it for the red carpet treatment.

The fact is, while these sites can be helpful info for consumers to know what their credit looks like, a credit pull will always be necessary if you want to borrow a large amount of money. Just so you don’t think we’re picking on you, here are the reasons why it’s a necessary evil:

  1. Credit pulls are about more than those ominous three numbers. A credit report will detail any accounts you have been delinquent on, for what time period, and how often. This is helpful information to evaluate if you are a proper candidate for a mortgage or other big bills like a car loan.
  2. The credit report will verify other information that is helpful to us, and you! One of the biggest factors is verifying your recent resident history. It will also show if you are available for something called Rapid Rescore, which is a potential quick fix for client’s credit scores. Feel free to ask our reps if you are eligible for it!
  3. The credit report is a great tool for improvement. If you are paying for a credit pull, which many, if not all, mortgage companies will require, you will get a copy of your credit report in the mail. This report will show you your three bureaus scores (Experian, Equifax & Transunion) as well as your FICO score, which is what is regarded most when you are trying to get a home. It will display if there are any delinquent accounts you know you paid off that are still showing on your report – this will help you dispute and remove these marks from all three bureaus. You also will see if you have been a victim of identity fraud or a company’s error in giving you a delinquent account when you have proof that it was not your responsibility.

credit pull 1Tips to make the credit pull process and applying for a pre-approval less annoying:

  1. Ask if your credit pull fee can be refunded at closing. At our office, we give the credit pull fee back to the client once they close escrow with us. We return the fee as earnest money to serious buyers because if the client is not ready to buy yet due to their score and any derogatory marks, they are basically paying for their own credit pull.
  2. Use those free resource sites to get an idea of what your credit scores are. Take the scores from the three bureaus and look at the mid-score, which will provide a good idea of what your FICO score may be. Ask the lender what their required minimum score is and if your mid-score falls short, you may know this is not the right time to apply. Just remember, those sites are not on-the-nose accurate, and a proper lender will not use that information to provide you a loan. An official credit inquiry must be made.
  3. If you have no credit scores, take up one to two new lines of credit, wait a short period of time, then apply for a home loan. Use it for small expenses you have every week anyway, such as groceries, gas, public transit, or visits to a coffee shop. Don’t use it for luxury items you never would have bought in the first place. If it’s something you would have paid in cash for, use your new credit card for it. You will build a credit history, and if you pick the right card, you can gain consumer rewards for on time payments like air mile points or cash back. Remember that a line of credit is not free money – it allows you to pay for items when you do not otherwise have the cash on you right now but know you can pay back in a month or less.

Federal Home Loan Centers has some of the lowest credit score requirements around for the VA, FHA, and USDA loan programs. Ask us more by calling 877-432-5626(LOAN) or tweet us at @FedHomeLoan.

Is a Short-Term Home Loan Better?

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We at Federal Home Loan Centers want to further remove stigma from the commitment of a mortgage.

When taking on any debt, we want to know many factors before agreeing to it. Aside from the primary concerns of the overall amount financed and the interest rate, there are two big things people worry about – the term of the loan (how long it takes to pay off) and monthly payments.

Let’s say, for example,  you want a home that is $200,000 with an FHA home loan. You will have to plunk down $7000 for a 3.5 percent down payment. Then, we will take the hypothetical $1000 property taxes, plus the $1200 annual homeowner’s insurance.

If you were set up with a 3.75 percent interest rate at a term of 30 years, your monthly payment would be around $1,077 per month when you include taxes and insurance. Let’s say that time commitment makes you nervous, and you want to pay this mortgage off faster than 30 years.

Since you would have to pay more of a principle amount to pay the loan off quicker, your monthly mortgage payment will go up. You will be paying around $1,586 per month now, for a shorter loan term. By paying off the loan at 30 years instead of 15, you would be saving over $500 per month. Yes, you will pay less interest if you span the loan less than 30 years, but when you think in the short term, you will have more spare money for the present to spend on an emergency, repairs, redecorating, or taking a vacation.

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Paying off a mortgage does not have to feel like this.

One of the biggest reasons you will want to stick to the longest term possible for a federal home loan is that there are no penalty fees for paying off your mortgage early. If you were in the position to pay off the remainder of your loan early, after you put aside a hefty amount of savings (we would say enough reserves to last you at a minimum of a year), you do not have to pay a retribution fee as punishment for the lender missing out on all that extra interest.

Remember, while a mortgage has potential to save you money and the money will be going towards your own property, a mortgage is still a financial undertaking. Putting undue pressure on yourself by shortening your loan term, or paying off your loan early if it means draining your assets, is not recommended.

A mortgage does not have to feel like a weight on your shoulders – it can be a liberating experience. If you have any doubts, ask your lender or seek out a friend, family member, or coworker who has gotten a mortgage. Asking others could provide you with some helpful advice.

If you are ready for a mortgage, give a call to Federal Home Loan Centers at 877-432-5626(LOAN). We would also love to tweet with you on Twitter at @fedhomeloan.

How to Avoid Buying a Haunted House

haunted houseLots of people believe in ghosts and the supernatural. Heck, over 75% of the employees in our office said they believe in ghosts!

DISCLAIMER: Although scary stories, paranormal pursuits, and psychics are great entertainment, so far neither ghosts nor haunted houses have been irrefutably documented. The only haunted house recognized by the US government was based on a court ruling of advertising. The probability is that the only ghosts in your neighborhood will be living people in costume celebrating Halloween.

haunted house 2Despite this, we all have at some point in our lives told ghost stories in the dark, we love supernatural thrillers in movie theaters, and the TV show “Supernatural” has been on the air for ten years. However, our love for the unexplained may not cross over when we are living in a property we believe to be haunted or has odd things happening in it.

Some people have challenged, both successfully and unsuccessfully, getting out of a mortgage agreement due to their home being haunted (look up the New York case of Stambovsky v. Ackley of 1991, and Callan & Chinchilla v. Lopez 2012 case in New Jersey). There are also real estate agencies starting to accept that hauntings and other “emotional defects” on a home may need to be more closely disclosed to clients to avoid lawsuits.

Here are some good ways to avoid buying a potentially haunted home, or to debunk ghosts if you are living in a spooky home:

  1. Google the address you are looking to purchase a home or rent an apartment at. Within the first few pages of results, you should be able to see if a murder, suicide, or other type of violent event happened on the property. It could even be a problem for some people if a car crash or another kind of disaster happened in front of the property or on the land before the home was built.
  2. Look into owning or renting a good quality EMF detector. These meters, which search for electromagnetic fields in the atmosphere, are said to be great ghost detectors. For skeptics, they serve another great purpose – humans can be sensitive to high levels of electromagnetic fields (EMF) and electromagnetic radiation (EMR). EMF detectors can show you if there is too much activity going on that can either be linked to a natural cause, or the unexplained. Either way, high levels of this activity can cause fatigue, unease, and nausea, which is what many people say they suffer from when they believe they are around ghosts.
  3. Get a good pest inspector. If there are claims of scratching within the walls, creaking, or items being misplaced from where they were originally, it is possible that some little rascals could be living in your house, and not a former dead resident. If unseen raccoons, squirrels, mice, rats, or other sizable rodents are messing around with you, this is easier to fix than dealing with ghosts.

Federal Home Loan Centers is ready to take your questions on affordable and lenient mortgages backed by the USDA, VA and FHA via HUD. Please call 877-432-5626 or tweet @FedHomeLoan.

Income Limits & DTI for Federal Loans

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How much are you making & how much is saved? An important question to ask in the loan process.

When you go to get approved for a loan, you know there are typical items needed from the lender. You know that, above all, you need to be gaining some sort of income.

What if your income is not from a job, but is from disability or a pension? Does this mean you are out of the home buying game?

One of the biggest factors in being approved for a home loan is something called Debt to Income ratio, or DTI. Let’s say your income to support yourself is $2000 a month – whether it is from a paycheck, payments from the government, or your pension, it is counted as income. Then, your monthly debts such as rent and any loans (personal, automobile, student, credit cards) are counted up.

With the factors in mind of how much you make versus how much you spend, your amount of disposable income that can be saved up is heavily regarded. What is the typical amount of DTI required to qualify?

“Maximum DTI depends on a number of factors,” says loan officer at Federal Home Loan Centers, Lyndsey Reimer. “Usually poor credit will mean DTI will be capped at 41 percent.”

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Makes you think of all the spare change on the sidewalk you’ve passed by through the years, huh?

What exactly does this mean? To use an example, if your FICO credit score was between a minimum of 580 to a score of 629 and you make $2000 a month, then you need to make sure you are saving $820 or more per month that is not spent towards monthly debts.

In terms of what is the minimum income needed for a home loan approval, since this is commonly asked of us at this office, there is unfortunately no set answer. It is dependent on the amount you want to be preapproved for, how much you make, DTI, assets, and other factors.

With USDA home loans, which are popular with consumers who have imperfect credit and don’t make a large salary, there will be income limits. While it depends on the county the applicant is living in, the acceptable amount is usually $75,000 a year or less for USDA home loans. Thankfully, with VA and USDA home loans, there is no income limit.

It truly is a case-by-case basis in terms of the income you make and what DTI will be acceptable. Your application will also be evaluated to see how big of a difference your rent will cost versus a mortgage to make sure you will not experience what is called payment shock. The only way to see if you are truly ready for a federal home loan is to formally apply.

If you are ready to get pre-approved for a federal home loan, call 877-432-LOAN(5636). You may also see what we are up to and tweet us on Twitter at @FedHomeLoan.

The Pre-Approval Process

It is important to make sure you can afford a home before making an offer. A pre-approval letter shows that your lender is confident in your ability to qualify for a particular loan amount. While it is not required that you obtain a pre-approval letter before shopping for a home, it is recommended.


credit stuffWhat information do I need?

Pre-approvals can usually be made off of verbal information and credit pulls.

Documents needed after pre-approval vary from lender to lender, but in most cases required documents include:

  • Proof of at least two years of employment
  • Social security information
  • Proof of income
  • W-2 or I-9 tax forms from the last two years
  • Residential history
  • Any debts
  • Credit report and credit score
  • Driver’s license/state ID
  • One month worth of recent pay stubs OR an award letter for social security, disability, or pension from the current year
  • Two months of official bank statements (no print-outs)
  • The past two years of tax returns, if applicable
  • Asset statements for savings accounts, a 401k, 403b, IRA, annuity, etc.
  • DD214 for honorably discharged veterans
  • For refinancing an existing loan, you will be asked for mortgage statement copies and a copy of your homeowner’s insurance policy

Any co-borrowers are required to provide the same information.


Why a Credit Report is Needed

A free credit report, such as from CreditKarma, seems appealing, but they are not accurate in most cases. Free credit score sites also give VantageScores, not FICO scores, which are required by most lenders. The difference between the scores can be further reviewed here.

A full credit report details any delinquencies the borrower has with other lines of credit. If there are late payments on credit cards, collections, or a bankruptcy that was not revealed during the application process, then they will likely not be a suitable candidate for lending. Merely going off the honor system when a client gives their credit score will not suffice for a large sized investment.

There are lenders, such as Federal Home Loan Centers, who will lend to clients who lack a credit score. Clients without a credit score will need to be able to supply a small down payment upfront, along with possible extra documentation. The USDA and VA home loan programs, more often than not, require a credit score to take advantage of the zero down payment benefit.


Employment

At least two years of consistent employment are required for pre-approval in most cases. Consistent employment means that you are doing the same type of work for two years. You can work at two or more separate companies within that two year span as long as the work is similar (example: you were a chef at Olive Garden, but then got a better job cooking at Cheesecake Factory with no job gaps).

If you have completely changed job industries, then it cannot be accepted as consistent employment, in most cases. Say you worked for six months as a baggage handler for Southwest Airlines but then got a new job as a customer service rep at Verizon; this would not count as consistent employment because you were working in two separate industries.


Social Security, Pension or Disability

If you are collecting income from disability, pension, or social security you may still qualify for pre-approval. As long as your debt to income ratio is found to be a manageable amount, then a lender should be able to accept award letters and pension as forms of income.


For VA Home Loans

Veterans or surviving spouses seeking their VA home loan benefit will need a Certificate of Eligibility or COE. You can get more information on how to obtain a COE here, but a good lender will offer to obtain it for you.


When can I make an offer?

You can technically put down an offer immediately upon getting a pre-approval. It is highly encouraged that all required documentation be turned in before making an offer. If you cannot provide this documentation, you may lose out on the home you put an offer on.

If there is any official documentation that cannot be provided for any reason, some lenders can sometimes accept what is called a Letter of Explanation. A Letter of Explanation details the situation and is signed by the person who drafted it. A Letter of Explanation is good for those in subcontracted positions, those with extenuating circumstances on financial hardships, and those dealing with payment errors from their employers.

If you have further questions about getting pre-approved for a federal home loan, call 877-432-5626 or tweet @fedhomeloan on Twitter.

Don’t Pay Off Your Mortgage Early

invoice-153413_1280In September of 2015, home purchases paid for 100 percent in cash made up only 31.3 percent of transactions in the American market . That means that much more than half the home sales in America for that month required a mortgage.

With the majority of buyers not able to pay everything up front when buying a home, there are those under a mortgage or who are getting a mortgage saying to themselves, “Oh, I’ll just save and pay off the entire mortgage ASAP.” While this is a good goal, there are some reasons why paying off a home loan early is a bad idea.

  • Penalty fees – There are some lenders who will charge a penalty fee for paying off a mortgage, or any kind of loan, early. This is because they are missing out on all that extra interest they could be making. While a mortgage will save you lots of money, the interest is what they are charging you for helping you invest in a home. Fortunately, federal home loans do not have penalty fees for early pay-offs, so let’s move on to the next reason.
  • Life Costs & Emergencies – Let’s say you saved up $120,000, used it to pay off the remainder of your mortgage and avoided a penalty fee – great! Now let’s say something comes up – a pregnancy, a medical emergency where you needed to pay a percentage of a very expensive surgery, or your car breaks down to the point where it would be less expensive to invest in a new car. You have now tapped out your extra resources in order to pay for your home in full.

Though the mortgage is paid off, you still need to pay for utilities, upkeep and other property costs, so what is going to happen if you can’t afford those? You will need to likely sell the house you just paid off, so hopefully any equity you earned compensates for that new stress you just took on to relocate. Keeping up with monthly mortgage payments will help you keep other money aside, just in case of a rainy day, and you can stay in your home.

  • Treat mortgage payments, mentally, like rent – Though a mortgage will likely be less than or equal to what you pay on rent, you are paying this towards home ownership rather than giving it to a landlord for their benefit while waiting for a rent increase or eviction if they decide to sell the property. If you keep that mentality of paying monthly to keep a roof over your head and realize you are not paying that much extra than an apartment would cost, it will help you realize your security. Don’t think about the concept of being “in debt,” but rather that you are paying for an investment that will outlive the mortgage.
  • Refinance instead – If you eventually find that the mortgage payment is getting a little high, whether you had a life event that affected your finances or you simply want to save more money, you can apply for a refinance. This process will approve you for a better interest rate, or will help get cash back out of equity on your property. Cash out refinances are also good for the earlier mentioned life events where you may need some extra money. Try going to your landlord and asking to pay less rent or to get cash back from what you paid for rent in the past. Spoiler – it is likely not happening.

Federal Home Loan Centers can be followed on social media on Twitter at @FedHomeLoan and on Facebook. Call us at 877-432-5626(LOAN) for more info on federal mortgages.

What Makes Federal Home Loans Different

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We often get calls here at Federal Home Loan Centers laced in confusion. How exactly federal home loans are different than conventional bank loans, is the key question on their minds.

There are six key differences from a loan you could get at a corner bank versus a government sponsored federal home loan provider, like us. We can also provide loan tables to customers with examples of fees if they apply.


CREDIT SCORE

One big pull for consumers to federal home loans is that a lower credit score than most conventional lenders will accept is needed. No government home loan programs require a specific credit score, so some applicants are confused when it comes time for a credit pull. Since the government is insuring the loan and not giving it to the borrower, it depends on what the lender requires. Many federal lenders require a credit score, which can be as low as 580, but typically 620 or higher is needed. Even when some banks accept a low credit score, they will follow it by weighing down the consumer with strict underwriting policies.


UPFRONT MONEY

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Down payments and closing costs are conventionally a big piece of the mortgage process. Thankfully, USDA and VA home loan programs do not require a down payment.

While you do not need that money upfront for those two loans, it is suggested you have money for closing costs, which can vary from two percent of the loan’s value up to six percent. There are lender and seller credits, which can help you cover closing costs. Seller credits are obtained when closing costs can be included and financed into the loan, if the seller agrees to it during the purchase contract. Lender credits are essentially a gift from the lender and do not need to be paid back.

For FHA home loans, you will need to be able to do a 3.5 percent down payment. This money can be gifted from others, but it still needs to be available as physical money to put down upon the purchase of a home. As stated above, seller and lender credits can help with closing costs.

Down payments on conventional home loans will typically be a requirement and the amount paid will be much more than 3.5 percent. There are some conventional loan providers who will do a down payment as low as three percent, but the underwriter will be more stringent and the interest rate will likely cancel out that extra .5 percent you would save versus FHA loans.


MONTHLY PAYMENTS

The monthly amount of your mortgage is going to depend on if a down payment was given, what the set interest rate was, what fees are going into escrow, and if the lender helped with closing costs. What can be financed into the loan are property taxes, home owners insurance, and any private mortgage insurance (known as PMI). Some of the fees may be avoided with certain federal home loans, pending on your circumstances. Interest rates with federal home loans can be one percent or lower than conventional loans, and this is without having perfect credit or leaving a big down payment.


WAITING PERIODS AFTER FINANCIAL HARDSHIP

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When a Chapter 7 bankruptcy occurs, two years will be the standard waiting time to qualify for a federal home loan. A three year wait is required with the USDA home loan. A conventional home loan will not be within your reach, typically, for four years.

Chapter 13 bankruptcies, with 13 months of on time payments, will get you a federal home loan after those 13 months of on time payments have passed. You will wait two to four years for a conventional loan.

If a short sale occurred, you can get another VA home loan immediately if all mortgage payments were on time, whereas any late payments will result in a two year waiting period. Three years will be your waiting time for new FHA and USDA home loans. Conventional home loans will leave you with a four year wait.

Now we come to foreclosures, which is the scariest word in the mortgage process. Let’s start with the bad news first: you will need to wait up to seven years for another conventional loan. The upside is you only have a two year wait for another VA home loan, or three years for a new FHA or USDA loan.

As you can see, waiting times can vary wildly. Getting approved again after any of these events will also depend on your credit score and factors like income, savings, and employment.


FUNDING FEES

For a federal home loan, a lender is the brain and the funding fee is the heart. The funding fee is what the government pays to subsidize using the federal home loan program for the borrower. This fee could be considered the cover fee or convenience fee in order to access these lenient programs.

Funding fees are typically 1.75 percent for FHA loans, can go from zero to 3.3 percent for VA home loans, and will be around two percent of the loan for USDA home loans. It is possible to add the funding fee to the overall loan.


LOAN AMOUNT LIMITS

Federal loans will typically need to abide by county limits. The limit seen through most of the county currently is $417,000, whereas expensive areas with higher limits, such as San Francisco, can see higher limits. San Francisco’s limit is currently at $625,000.

Federal home loans are meant to get Americans into housing that is suitable enough for their needs and their budget, so while getting a jumbo loan that exceeds county limits is possible, it can be tricky. People can use FHA and VA home loans on multi-family properties and use rent to help pay for the mortgage, but the catch is that the borrower needs to be using one of the units as their primary residence.

Federal Home Loan Centers is happy to take further questions on federal mortgages over on Twitter at @fedhomeloan or by calling 877-432-5626(LOAN).