When seeking a home loan for a purchase or refinance, it seems like conventional financing is the most sought after option. This is not always because it is the best loan. It just has been assumed to be the best option in most lending circles. Understanding what a conventional loan is will help you make an informed choice.

A conventional home mortgage is any loan that follows Fannie Mae, Freddie Mac, or private label home loan lending criteria. This includes subprime, negative amortization ARM’s, jumbo, and interest only loans. Excluded loans are FHA, VA, USDA, business financing, and commercial loans.

Conventional mortgage loans offer definite advantages for some borrowers. One advantage is that there are no loan limit restrictions. This will not affect the average person, but if you are in the market for a home loan greater than roughly $800,000, this is your only real option.

Another advantage is the option of eliminating mortgage insurance and not having your taxes and insurance included in your mortgage payment. This option is available only if you have a 20% equity stake. These are not options with other types of home loans. Although you will not pay mortgage insurance for the duration of the loan, there will be an insurance cost. You will not be allowed to pay your taxes and insurance on your own. These payments must be escrowed and included in your monthly mortgage payment.

If your income is not easily verified, conventional lending has alternatives that allow for limited or no documentation of income. You will need excellent credit and either a large down payment or a lot of equity due to the inherent risk to this type of loan. The interest rates are also higher due to this risk. Limited income, no income, or stated income loans are largely for a self employed borrower who receives no pay stubs or W-2’s.

In today’s market, conventional home loans do carry some definite disadvantages. The major disadvantage is that the required equity stake is higher than on non-conventional loans. This means a purchaser will need to invest a greater down payment and someone looking to refinance will need a higher value vs. the loan amount requested. Credit underwriting is also stricter and current interest rates tend to be higher for those with average credit scores. The debt to income ratio is less flexible.

Understanding all of your options will help you choose the right mortgage for your needs and qualifications.

Visit the FHA Loans page for expert information about FHA, 100% USDA, and VA financing options.

There are three categories of properties that are sold by HUD as foreclosures.

They are:

1) Insurable Listings (IN):

An Insurable Listing (IN) generally does not need any repairs.

2) Insurable Escrow Listings (IE):

An Insurable Escrow Listing (IE) needs minor work (under $5,500). These funds will be financed in set aside in an escrow account for you to complete the repairs after your purchase.

3) Uninsurable Listings (UI):

An Uninsurable Listing (UI) will need repairs greater than $5,500. These homes are only eligible for FHA 203K (Rehab) financing. The cost of the repairs will be included in your mortgage.

When bidding on a HUD home always remember this.  If your bid is more than the asking price you will be asked to pay the difference in cash.

Example:

If HUD is asking for $100,000 and you bid $105,000, you will be required to invest at least the minimum 3.5% as a down payment PLUS the additional $5,000.

The above is not a requirement when you choose an FHA 203K loan as your financing option. Every HUD listing is eligible for this type of financing no matter what category they are in. If the home does not need repairs the money can be used for upgrades, energy improvement, and appliances.

In short, if you plan to bid more than HUD’s asking price an FHA 203K loan may be your best option!

I’ve helped thousands achieve their dream of home ownership in my 20 year career. Call or email me anytime!

Mark Robinson

732-207-8434

mark@njfhapro.com

There are reasons to choose an adjustable rate mortgage (A.R.M.). A large amount of borrowers do not have a complete understanding of this type of loan. This may be based upon inexperience, lack of a detailed explanation, bad press, or other factors relied upon in the decision making process.

There are times when an adjustable rate mortgage may be your best home financing choice.This will depend on your situation.

Some of these reasons are listed below:

• You expect to sell your home within a few years.

• Your income is increasing and you need a lower initial payment to qualify. An FHA adjustable rate mortgage uses the start rate for qualification purposes.
  

• You are planning to pay more toward the mortgage principal to pay off your loan faster.

• You have additional household income but it can not be used to qualify.

An adjustable rate mortgage tends to have a lower overall rate than a fixed rate mortgage because it is much easier to project profit margins.

When a bank gives you a fixed rate mortgage they are assuming that the loan will be profitable over a period of time. This mortgage may cease to be profitable if market conditions change, especially the inflation index. The rate is higher on a fixed rate mortgage to hedge against this occurrence.

Let’s use a loaf of bread as an example of this logic:

You loan a friend a dollar when bread costs 90 cents a loaf. Your friend promises to pay you back $1.10.  When he pays you back the bread costs $1.20 a loaf. The dollar you loaned out is more valuable than the money returned to you. You actually took a loss although you received more money. This is the effect of inflation. You would need to charge a higher rate of return to reduce you chances of taking a loss because you are guessing the value of the returned dollar.

Now let’s use the same example in relation to an adjustable rate:

You loan a friend a dollar. He promised to pay you back 10 cent profit, but the profit will be adjusted for inflation.  Since bread went up 30 cents, you will receive $1.40 back. In this example you could charge less because the guesswork for inflation is gone. An adjustable rate mortgage limits the guesswork for a projected profit so the rate of return initially charged can be less. If the price of bread stayed the same or went down, you would actually pay back less!

An ARM has five major components. They are a floor, ceiling, caps, margin, and index.

The floor is the lowest rate and the ceiling is the highest rate that can be charged on your mortgage when it adjusts. The caps are limits on the adjustment for any period of time. Caps are set to avoid payment shock or large payment increases.

The margin is simply the profit margin that will be set. This is a fixed amount and it will never change. This number is added to the index to derive your rate adjustment.

The index is the component that will actually adjust. The index must be readily available and easily found to be fair. If everyone agreed upon how many apples are in a barrel then this could be an index.

Banks use standard indexes that are published daily. They most widely used are the LIBOR, Treasury, COFI, and Prime.

• The LIBOR stands for London Interbank Offered Rate. This is a daily reference rate based on the rates at which banks borrow unsecured funds from other banks in the London wholesale money market.

• The Constant Maturing Treasury (CMT or Treasury) is a United States Treasury security or government debt issued by the United States Department of the Treasury.

• The COFI or Cost of Funds Index is a regional average of interest expenses incurred by financial institutions. This is mostly based on the 11th district Federal Home Loan Bank (San Francisco CA).

• Prime indicates the rate of interest at which banks lend to favored customers with high credibility. These are usually large corporations.

Always remember that the margin plus the index equals your new adjusted rate, but it can not adjust below the floor or above the ceiling. It also can not adjust beyond what the caps allow for any given period of time. It’s that simple.

Your choice of the security of a fixed rate or the flexibility of an A.R.M. will depend on your individual circumstances.

Contact me at 732-207-8434 or email mark@njfhapro.com

for the lowest rates and fast, reliable service!

Knowing all details will help you make a fully informed decision.

You’ve worked hard to maintain a good credit rating. Paying your bills on time and budgeting wisely, but the dream of home ownership is escaping you. You just have not been able to save the down payment.

You may be in luck. There is a home loan program that is specially designed to fit your needs and circumstances. The interest rates are very low and it covers about 90% of New Jersey’s suburban areas.

You may not have heard about this mortgage program before because there are limited people in the mortgage industry who will utilize this program for your benefit. A great majority of mortgage professionals do not even know this home financing option even exists.

It isn’t VA. You don’t have to be a veteran. It’s USDA!

Here are some of the benefits:

1) 100% Financing for a Single Family Home Purchase.

2) No Mortgage Insurance Requirement.

3) Low Fixed Interest Rates.

4) Loan is backed by a Government Guarantee.

5) No Prepayment Penalties.

6) Seller May Pay up to 6% of Your Closing Costs.

7) Closing Costs may be financed into the loan up to the Appraised Value.

This Loan Allows for True 100% Financing, Even the Closing Costs!

This loan is designed borrowers who have not been able to save the necessary down payment for a home purchase. This is often caused by rent interfering with the ability to save sufficient funds or just the everyday cost of living and raising a family.

It is also designed for low to moderate income borrowers. A borrower is considered to have moderate income if it does not exceed 115% of the area median income. The amount of people in your household is also considered in this calculation. You may make well over $100,000 and still qualify under certain circumstances.

This link will take you to our short form application:Quick and Easy Online Application. It takes less than 2 minutes to complete.

We will gladly answer any questions, or you may email us at: Mark@njfhapro.com for more information, or call 732-207-8434.

Here is a link to the areas in New Jersey that are covered by this program:New Jersey USDA Lending Areas.

You Deserve to be a Proud Homeowner!

*Visit the“Welcome” link for More Great News about NJ Home Mortgages!*

An FHA 203k loan will allow a prospective buyer to compete with the “all cash” investor. An FHA 203K loan will allow for necessary repairs to a property that would not otherwise qualify for bank financing. This financing is also available for current homeowners to make property repairs or upgrades.

There are 2 types of 203K loans: Full “K” and Streamline “K.”

A full 203k is used for a property that needs structural repairs, or if the repairs will exceed $35,000. Normally a certified HUD plan consultant will be used for work cost estimates. A HUD reviewer makes the paperwork a lot easier because the average contractor will not be familiar with the documentation. The reviewer just allows for a smoother flow, but the HUD reviewer will not do the repairs.

A streamline 203K is the best loan if no structural repairs are necessary and if the scope of work is $35,000 or less. Up to $8,000 of energy efficient improvements may be added to a streamline 203K in excess of the $35,000 limit. The contractor usually prepares the estimate on this loan. The paperwork is less so it can easily be done with without a HUD plan consultant but the written estimate must be detailed.

A full FHA 203k and a Streamline 203K will allow for the use of multiple contractors if that is your desire. You may have a contractor that specializes in flooring, and another that is a licensed plumber. This is allowed, but written estimates must be obtained from each.

The normal process flow is as follows:

• Get Pre-Approved by a Qualified Lender. This is a MUST. I am a Qualified FHA 203K Lender.
  

• Find a home and make an offer.

• If the offer is accepted, chose your contractors and get written work estimates. When a HUD plan consultant is used they will prepare the estimates and paperwork.

• The contract, repair estimates, and necessary paperwork are delivered to a qualified 203k lending specialist. (We are qualified specialists.)

• A mortgage application is prepared.

• The work estimates are given to the appraiser. The appraiser will prepare an  appraisal with a value “subject to” completion of the work.

• The loan is underwritten and approved.

• The seller is paid. You are the new homeowner.

• Work begins.

The contractors will have up to 6 month to complete the necessary repairs. Of course the repairs can be completed sooner. It will depend on the amount of work requested or required. They will be paid in increments as the work is done and inspected.

If there is a lot of required work, a full 203k has a provision where you may remain in your current home with no mortgage payments due while work is ongoing.

If you have more questions or need additional assistance on a New Jersey FHA 203k loan:

Contact me at 732-207-8434, or email mark@njfhapro.com.

I am a New Jersey FHA 203K Lending Specialist!

Pre-qualification and Pre-approval are terms that you will hear when you are house hunting. Yes, they do sound similar, and sometimes they are used in a similar fashion, but they are absolutely not the same.

A pre-qualification is an informal review of your qualifications. You may receive one without providing any income or asset documentation. Usually a credit report is ordered, but that is not true in all cases.

If you make an offer on a home with only a pre-qualification the offer may be rejected by an experienced agent. If your offer is accepted then there is a limited guarantee that your loan will be approved.

A pre-approval is a much more formal review of your qualifications. Proof of income, assets, and credit worthiness must be provided. The documentation is carefully reviewed and the customary mortgage debt to income ratio is calculated. More in depth questions are asked to make sure underwriting questions are addressed.

An offer with a pre-approval attached is much stronger than an offer with only a pre-qualification. The pre-approved offer has a much higher likelihood of closing in a timely fashion.

When you have a choice between a pre-qualification or a pre-approval Always Choose to be Pre-Approved!

As of April 5^th, 2010, FHA’s up front mortgage insurance will increase from 1.75% to 2.25% for all new loans.

What does this mean to you? For every $100,000 borrowed, an additional $500 will be added to the principal of your loan. You are allowed to finance in this additional cost but it will increase your monthly mortgage payment.

*** On or about Oct. 4th, 2010 FHA mortgage insurance will increase again. Details will be published here one finalized. Stay tuned!

If you have good overall credit but your credit score seems too low, take a careful look at the amount of money you owe on your revolving debt. If your credit cards at or above the maximum limit may harm your credit score.

It may not be necessary to pay off your credit cards. Paying down the balance or increasing the maximum limit may result in an improved credit score.

One common mistake is closing a paid credit card. Leave the credit card open. The relationship to your maximum credit and balance owed will raise your score.

If you close the account, the above effect will be negated. This may actually result in a lower credit score.

If you need additional mortgage or credit related help, contact me. My assistance is without charge (free).

Call me at 732-207-8434 or email mark@njfhapro.com

Sincerely,

Mark Robinson

NMLS License #198843

Licensed by the New Jersey Dept. of Banking