Circle Mortgage Group provides its clients with mortgage products and programs currently available through Fannie Mae, Freddie Mac, and Government lenders, along with a few smaller portfolio institutions. If you have a special need, we also have relationships with private lenders, credit unions, and other lending institutions.
Obtaining a mortgage for a home where you will live is a big decision, one that should not be taken lightly or with using risky financial products. When buying a home, the mortgage product chosen should fit into your financial picture and create peace of mind, not a nervous tic. Below are listed the most common products chosen to mortgage a residential property.
A fixed rate mortgage is the most common mortgage product used by homeowners. Here the interest rate remains the same over a period of ten to thirty years. The monthly payment consists of principal and interest which will remain the same until the loan is paid off, or “fully amortize.” As time goes by, a larger portion of the monthly payments will be applied towards the principal amount owed rather than interest until there is nothing due. This is the most stable option to have over the long term.
With an adjustable rate mortgage (ARM), the interest rate is not fixed and will change periodically according to the mortgage schedule. The rate change is based on a predetermined margin as well as a particular economic indicator. For example, a one-year ARM is based on the one-year Treasury note (economic indicator). When calculating the next interest rate change, it will be based on the economic indicator plus a pre-set number (the margin). There will also be two caps (or limits): an annual cap and a lifetime cap. The annual cap places a limit on the interest rate for the year. The lifetime cap limits the maximum interest rate that can be charged for the life of the loan.
Rates can be fixed for a short period and then change based on a designated economic indicator; a popular choice is the one year Treasury Bill. The monthly payments are typically amortized over 30 years, but the rate can be fixed for 10, 7, 5, 3 or 1 years. The longer the fixed term is, the higher the interest rate will be to start. When deciding between a hybrid ARM and a fixed rate mortgage, calculate the difference between the monthly payments for the hybrid ARM and the fixed rate loan. If there is no significant difference in the dollar amount, then it is suggested to stay with the fixed rate. Do not make a decision based on what you think you are going to do in the short-term future.
Even if you have less than perfect credit, a lower income than you should, or not a lot of money saved, you may still qualify for a FNMA loan. The interest rate may be slightly higher, but it is NOT a sub-prime loan. FNMA has loan risk levels: I (the best), II, and III, all of which measure your ability to repay based on your entire financial picture. Compensating factors such as employment history, post-closing assets, and large down payments are used to rate your creditworthiness and ability to repay, and these will determine what level the loan should be. The higher the loan risk level is, the higher your rate and cost. . You may also be eligible for a reduced rate after making 12 to 24 timely payments. Most lenders do not offer them at this time, but it never hurts to ask.
Here you include your employment information, income and assets; however, only your job and assets will be verified. Proof of employment must be verbally verified with your employer and/or verified through a third party, such as a CPA letter, license, etc. The income stated must correlate to your job description. The lenders have industry charts for positions and income and use sites like Monster.com. Assets are verified with proper documentation such as bank statements. Lenders now require 3 to 12 months income in reserves. This loan will require a much higher down payment as well as pristine credit scores. Again, this is a loan program that might only be offered by a small lender or private bank.
Government programs include FHA, VA, and several HARP programs under the new Administration. Although not right for everyone, these government programs can offer valuable mortgage tools for qualified borrowers. Through years of experience and strong relationships with several of the country’s largest government lenders, we provide our clients with available mortgage products at very competitive rates. It is important that the consumer be educated on the process, terms, and qualifications of their mortgage products and even more important that their loan officer be experienced enough to teach them.
FHA mortgages are government-insured loans for owner-occupied homes. The program is intended to assist in providing housing opportunities for low to moderate income families who might not otherwise qualify for a loan. Programs cover 1-4 family homes and condos. There are additional programs for certain investor-owned homes as well as construction loans.
Currently, the maximum loan-to value is 97.5%, and the minimum FICO score is 620. There are no maximum income requirements. Your down payment money can be from a gift, and your employment history can be short. This loan is government-insured in the form of Mortgage Insurance Premiums (MIP) and is required to be paid by the borrower up front and monthly. There are certain guidelines that will allow the borrower to be eligible to remove the insurance after a certain period of time.
A 203k loan combines the cost of a home purchase with the costs of renovation in one loan. The loan amount is based on the “as completed” value and not the purchase price, so the loan amount is not limited by the initial purchase price. The product can be for conforming or high balance loan amounts and for 1-4 family homes; however, they do follow the basic qualifying factors of a normal FHA mortgage in addition to the extra construction/renovation requirements.
This loan program is available exclusively to veterans of the United States Armed Services, reservists, and active-duty personnel, as well as un -(re)married spouses of fallen military personnel. The agency does not provide the funds for the mortgages directly but partially guarantees the mortgages against potential default. The VA also guarantees a percentage of the loan based on the loan amount. The home must be owner-occupied, and co-ops are not allowed. VA loans will allow up to 100% loan amounts and does assist with some of the closing costs; however, it might not be the best loan program for an eligible borrower. Make sure that you are properly counseled on the actual details of the program and offered alternative ideas to choose from.
A reverse mortgage is a federally insured loan for borrowers aged 62 and older. The borrower must occupy the home as a primary residence, proving that he or she occupies it at least 6 months out of the year. It can be a 1-4 family house, condo, or co-op. Here the borrower need not qualify based on income or credit but only on the equity of the home. The idea is for elder persons to have the ability to draw income from the equity of their homes based on need. It can be in the form of a lump sum, monthly draw, or line of credit, depending on the need.
The mortgage will be paid off if the house is sold or when the owner no long occupies the home as a primary residence. Counseling is required for the loan product prior to the closing either in person or over the phone.
This refers to the type of process when refinancing an existing FHA mortgage. The process and paperwork are streamlined; however, there will still be costs involved. The reason to do the refinance is to lower the borrowers’ monthly principal and interest payment. There can be no cash taken out of the equity, nor can debts be consolidated. Of course, the closing costs can be rolled into the new mortgage amount if there is exiting equity in the home; however, be aware of “no closing costs” streamline mortgages. To cover the expenses, the lender will increase the interest rate.
This is a Fannie Mae product available through banks that allows someone to refinance his or her existing mortgage if it is owned by Fannie Mae. The idea is to give a homeowner the benefit of a lower monthly payment and lower interest rates even if the value of their home does not meet the requirements. There are guidelines outlined by Fannie Mae for qualifying for the refinance. Things such as credit score, maximum combined loan to value, and property type (not co-ops or non-Fannie eligible condos) will fall into play. Each lender may have its own guidelines it uses to determine if it will do the loan, especially if it does not service the existing loan the borrower wants to refinance. The first step is to see if Fannie owns your loan. It might state it somewhere in your mortgage statement or credit report, but you can also check http://www.fanniemae.com/loanlookup to see. This product continues to change so you must check with the lender concerning currently guidelines.
Similar to the Fannie program, mortgages owned by Freddie Mac may also be refinanced even if the loan to value of the home will disqualify the loan. Freddie requires that there be no more than one 30 day late payment within the last twelve months and none within the last six months. The borrower must be able to verify income but there are no maximum limits on the loan to values. Again, the loan must be owned or service by Freddie Mac. You can find out if your loan is by clicking here
Condos and co-ops, mixed use properties and multifamily homes
Not everybody lives in a single family house and some properties require extra work in order to get a mortgage. With the properties below, the loan process takes much longer because of the extra due diligence and approvals. These properties allow conventional loan products but require a special touch.
A condominium is considered “real property,” and the units (apartments) are owned individually. In addition, each condo owner has a percentage of the entire condominium corporation, together with the other unit owners. As an owner, you are responsible for a percentage of the upkeep charges of the entire building, which are called “common charges.” Because you own your unit individually, you must pay real property taxes as if you owned a single family house. There is no insurance required, but we suggest you get insurance on your own unit and belongings. Seldom is board approval required, making it much easier to sell or rent the property than with a co-op. Remember, each condo is different and some are better than others. Since the lender will be reviewing the financial stability of the building corporation, if they decline to lend in it, do you really want to buy in it?
With a cooperative unit, a corporation owns the building, and the individual owners are shareholders in the corporation. When an individual owns a co-op unit, he or she has both shares of stock (giving ownership) and a propriety lease (giving the right to live in the unit). Thus, you rent your apartment from the corporation in which you are a shareholder. With a co-op, maintenance is paid to cover both the common charges as well as the owner’s share of the real estate taxes and mortgage on the building. The prorated share is determined by the shares of stock applied to the unit. The House Rules for a co-op are much stricter than a condo; therefore, the building might not allow subletting, pets, or renovations. In addition, most co-op corporations require some sort of board approval, which requires a face to face meeting. The process can be arduous and possibly annoying, but if you want to live in the building, it is best to roll with the punches and laugh it off at the end.
A house which contains 2 to 4 units is considered residential whether the owner resides there or owns it as an investment property. Note that if a home is over five units, it will be considered commercial regardless of occupancy by the owner. A multi-unit home is a greater risk for lenders and will thus cost more to obtain financing. As the number of units increase, so too will the interest rate. Lenders will calculate the rental income and total cost of the property differently depending on the lender and the loan program. Be aware, not only are you a home owner, you are also a landlord!
A small commercial property is made up of both commercial units and residential units. The building can be occupied by the owner in either the commercial space or residential (depending on what his or her needs are) or not occupied by him or her at all. The lender will do an analysis of the rental income separate from the owner’s personal income in order to qualify the mortgage. Some important factors with commercial loans for mixed-use buildings are down payment, loan types, costs, balloons, and pre-payment penalties. The lender will review the building, grading the risk in case the borrower forecloses and the bank must take it over. These loans are difficult, expensive, and not for the new homeowner type.
Mortgages to grow on
Construction, rehab, and other loans are really hard to come by now. Many builders have resorted to private money or high interest rates. There are, however, viable creditworthy lenders out there that still do construction loans at competitive rates.
A construction loan is used when you are planning to build a new home using either a builder or a general contractor. Either way, the loan application is treated as a regular loan. In addition to approving you as the borrower, the lender will also require documentation to review the builder’s experience. The lender will further require a review of the building plans and specifications as well as an appraisal based on an estimate of the property’s value with the finished construction (called “as completed value”). The lender will disburse the funds in stages as the work is completed; inspecting the progress of construction and monies spent each time. This loan is unique and risky, so the lender used for it should be experienced and quite well-versed in this type of loan.
This type of loan is unique because there is no structure involved in the security in the property, just vacant land. Many lenders will not offer them, and lenders that do will typically provide the land loan as a courtesy springboard into a construction loan to build a residence. A loan may be obtained to purchase vacant land up to 75% of the purchase price with the balance of the sales price to be paid out of pocket. This type of deal may include stipulations to repay the loan within a certain amount of time or to roll it over into a construction loan, again within a certain timeframe. If the land is already owned, a loan may be taken out against the equity from 50% up to 75% of the value of the land. If the land was purchased within the previous 12 months, the loan is based on purchase price. After 12 months, the loan is based on current value. Again, the loan is typically part of a construction loan and can be used to cover initial costs. The loan process is the same as obtaining a mortgage to buy a home.
A “rehab” (rehabilitation) loan is a type of loan in which you need to borrow money to purchase the home and then need additional funds to make improvements to the home. This is a two-stage mortgage that will cover the entire amount needed for the purchase and rehab. The first part of the loan transaction will be the purchase, which is based on the original purchase price. The second part of the loan will act as a construction loan. As the work progresses, the lender will disburse money to the borrower until the entire rehab is finished.
If you already own a home, you can take out a home improvement loan in the form of a second mortgage. The second mortgage will be treated as a construction loan, and the money will be disbursed as the work progresses. There is more than a Home Equity Line of Credit and is the best choice if a big job is being done, such as an addition. After the improvements are finished, the loan becomes a “home equity loan” or a “fixed rate second mortgage.” (You will need to decide which loan is in your best interest for the long term.) The loan amount will be calculated based on an estimate of the property’s value with the finished improvements (called “as completed value”). If the value has considerably increased, you might want to look into refinancing the first mortgage and combining it with the second mortgage into one loan at a lower fixed rate and term.
A Home Equity Line of Credit (HELOC) can be a first or second loan on your home. It is a line of credit which you draw on rather than get in one lump sum. You can use the money and pay it back as long as you own the home and keep the line open. A HELOC may be used to purchase a home or utilize equity in a home you own. The loan to value of the loan will be determined by criteria such as credit score, amount of first mortgage, and total monthly debt. The interest rate is typically based on the Prime Rate, although there are some products that offer a fixed rate. Be aware of no closing costs, hidden charges, teaser rates, and pre-payment penalties.
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