RATE TODAY
(800) LOANS-15
Types of Loans
At US Mortgage Corporation we offer a wide product suite to accomodate a variety of different funding needs.
Conventional/Conforming
A conventional mortgage is a mortgage NOT obtained through the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), or the US Department of Agriculture (USDA). There are two types of conventional mortgages: conforming and nonconforming.
Conforming Mortgages
A conventional mortgage conforms to loan limits, down payment requirements, borrower income requirements, debt-to-income ratios, and other underwriting guidelines established by Fannie Mae and Freddie Mac. Fannie Mae and Freddie Mae purchase mortgages that meet these limits, thereby creating additional funds lenders can use to make new mortgages.
The conforming loan limits for 2009 are:
- One-Family Properties: $417,000
- Two-Family Properties: $533,850
- Three-Family Properties: $645,300
- Four-Family Properties: $801,950
The Federal Housing Finance Agency, which now sets the loan limits, also created higher loan limits for areas of the country designated as “high-cost areas.” There are high-cost areas in all regions of the country except the Midwest.
In high-cost areas, the conforming limit for one-family properties can be as high as $625,500. In Alaska, Hawaii, Guam, and the Virgin Islands, the conforming loan limits can be even higher, ranging from $625,500 to $938,250.
Government (FHA, VA, USDA)
Non-conventional mortgages are mortgages obtained through government agencies such as the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA) and the US Department of Agriculture (USDA).
FHA Loans
The Federal Housing Administration (FHA) does not make loans. It insures loans. In the event of foreclosure, the lender is protected by mortgage insurance issued by the government through the FHA. The insurance covers the full value of the loan.
The FHA was originally created during the Great Depression when the high rate of foreclosures discouraged lenders from making new mortgage loans. President Franklin Delano Roosevelt and Congress established the FHA in 1934 with the enactment of the National Housing Act. The passage of the National Housing Act and the establishment of the FHA were components of FDR’s New Deal programs to rescue the U.S. economy from the ravages of the Depression. The FHA gave the business of mortgage lending a jumpstart by insuring the full value of mortgages for qualified borrowers. By insuring loans, the FHA eliminated the risk of foreclosure, thereby encouraging lenders to make new mortgages.
In 1965, the FHA became a part of the Department of Housing and Urban Development (HUD). Since that time, HUD has been the federal agency that is responsible for issuing the rules that regulate FHA-insured loans. On its website, HUD reports that since 1934, “The FHA and HUD have insured over 34 million home mortgages….”
In the recent past, the primary function of the FHA mortgage insurance program was to ensure that low-income families, first-time buyers, and other borrowers who could not qualify for conventional loans could obtain a mortgage. FHA lending limits established the maximum amount that a borrower could borrow for an FHA home loan, and these limits helped to reserve FHA-insured loans for homebuyers who did not have access to other mortgage products. However, now that mortgages are less available for a wider range of Americans, Congress responded by including provisions in the Housing and Economic Recovery Act that are intended to make FHA loan available to more consumers.
FHA loans are now available to more Americans as a result of higher loan limits. These limits are posted on HUD’s website for each county in each state, Guam, and the U.S. Virgin Islands. The limits for 2009 are $271,050 in low cost areas of the country and $625,500 in high-cost areas. HUD addressed the need for higher loan limits stating:
For several years, FHA's loan levels were below the cost of the average home in communities across the nation. As a result, families who needed FHA mortgage insurance to qualify to buy a home were effectively locked out of the process. In some cases, borrowers turned to exotic subprime loans.
Advantages of FHA loans include low down payments, no prepayment penalties, and fee limits on closing costs.
FHA Programs
FHA offers a number of programs to meet the needs of eligible borrowers. Several popular programs include:
203 (b) Home Mortgages: FHA’s primary program, 203 (b) is a fixed rate program used to purchase or refinance one- to four-unit family dwellings
251 Adjustable-Rate Mortgages: The 251 program is based on 203 (b), with the added feature of an adjustable-rate. FHA offers a number of different types of ARMs, including one-, three-, five-, seven- and ten-year versions.
234 (c) Condominium Mortgages: The 234 (c) program is used to purchase a unit in a condominium. FHA has a number of specific requirements regarding the condo project. For example, the condo must be part of a project with at least four units and 51% of the units must be owner-occupied.
Energy Efficient Mortgages: These loans are allowed for improvements to existing and new construction properties to increase their energy efficiency. Financing is the greater of 5% of the loan or $4,000, with the maximum capped at $8,000.
245 (a) Growing Equity Mortgages and 245 Graduated Payment Mortgages: Similar in structure, these programs are intended to assist borrowers by lowering the initial costs of their mortgage. Payments increase each year so the programs are best for borrowers expecting a steady increase in their income over time.
2-1 Buy downs: FHA permits borrowers to buy down the rate on their fixed rate loan. Lenders are required to qualify the borrower at the note rate and not the buy down rate.
203 (g) Officer and Teacher Next Door: The 203 (g) program is intended to revitalize communities by offering homes for sale at a 50% discount to teachers, law enforcement officers and fire fighters/EMTs. HUD requires a mortgage agreement to be signed for the discounted amount although no payments or interest is charged as long as the borrower fulfills a three-year owner occupancy requirement.
Nonconforming Mortgages
- A nonconforming loan is a conventional mortgage loan that exceeds current maximum loan limits and underwriting requirements established by Fannie Mae and Freddie Mac. Examples of nonconforming loan include:
- Jumbo loans, which exceed the loan limits established by Fannie Mae and Freddie Mac (With conforming loan limits set at a high rate, many loans that were once nonconforming jumbo loans are now conforming loans)
- Alt-A, which is a designation for loans made to borrowers who do not represent the greatest credit risk of subprime but who still do not quite meet the underwriting requirements for conforming prime rate loans
- Subprime loans, which are higher-interest loans made to borrowers with blemished credit or other qualification issues, that do not conform with Fannie Mae and Freddie Mac underwriting requirements
- Niche loans, which are loans for borrowers with unique circumstances or needs.
- Super Conforming Loans, The Housing and Economic Recovery Act of 2008 authorized Freddie Mac to publish higher conforming loan limits. The GSE has indicated that super conforming loans will be eligible for purchase through December 31, 2009.
- Super conforming loans are used in certain high-cost areas and may be made at the lesser of 115% of the area median home price or 150% of the conforming loan limit. This amount can be up to $625,500 for one-unit properties and as much as $1,202,925 for four-unit properties. Freddie Mac and FHFA’s websites provide more detail on super conforming loans.
