Types of Financing

Types of Financing

These are the major loan types.

There are many programs available for each of these categories.

♦   VA Loans Not available to the general public, the Veteran’s Administration (VA) makes federally guaranteed loans available to eligible veterans and requires no down payment for loans up to a limit set by law. Higher loans require some down payment. The maximum interest rate is set by the VA. The monthly principal and interest payment remains constant for the life of the loan and the loan will amortize (usually in 30 years). No mortgage insurance is required.

♦   FHA Loans The Federal Housing Administration (FHA) provides mortgage insurance to lenders who originate loans according to FHA guidelines. The FHA mortgage can be utilized by nearly all homeowners. There are no income limitations and no previous home ownership restrictions. The down payment is as low as 3-5%. There several different programs available for FHA financing.

♦  VHDA Loans The Virginia Housing Development Authority (VHDA) offers mortgages for individuals and families who meet income restriction guidelines and who have not owned a home in the last 3 years. This program allows some buyers to buy their first home with affordable financing. There are several programs available under VHDA.

♦   Conventional Loans Conventional financing is available to any borrower and is usually written for 15 or 30 years. Mortgage insurance is required if the down payment is less than 20% of the purchase price. The lender may quote points wanted (if any).

Fixed-Rate Conventional MortgageThe monthly principal and interest payment (P&I) remains constant for the life of the loan. Interest rates will reflect the current market trends.

Adjustable-Rate Conventional MortgageThe principal and interest payment (P&I) will remain fixed for short periods during the term of the loan (1 year, 3 years, 5 or 7 years) but are subject to change at the adjustment period. The new interest rate will be a combination of the rate of a specific index (agreed upon by you and the lender) plus a fixed percent (called a margin or lenders’ yield). As a safety feature, most loans will stipulate the percent of adjustment allowable in the monthly payment (P&I) at any adjustment period and over the whole life of the loan (called caps).

Interest OnlyInterest-only mortgages can be used for purchase or refinance transactions and allow homebuyers to make payments of “interest only” during the fixed-rate period of the ARM − five, seven or 10 years. After the interest-only period has ended, full principal and interest payments are required as the loan fully amortizes. Homebuyers/homeowners can make principal reductions during the interest-only period, but aren’t required to do so.

Rehab Loans

♦     FHA 203K Streamlined – The 203k streamline is an all-in-one loan used for homes that need minor repairs.  It allows borrowers to finance the purchase of an existing home and make improvements or upgrade up to $35,000.  There is no minimum repair costs and the borrower must occupy the property.

♦     FHA 203k Full  The 203K standard is an all-in-one loan used when homes need major rehabilitation, or when repairs are structural, involves landscaping, or when the renovation costs exceed $35000 including the contingency reserve requirement.  There must be a minimum of $5000 worth of repairs, and the borrower must occupy the property.  For a purchase you may also roll in up to six months of mortgage payments if the home is not habitable during repairs.

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