| Conventional loans - Conventional loans are those that are not guaranteed by the government, as are FHA and VA loans. The primary guidelines for these loans come from Freddie Mac and Fannie Mae, the secondary mortgage market, where most loans are sold. This type of loan usually has the most flexibility because of the huge range of loan products offered, and most of the time the rate is slightly lower than the government insured loans.
FHA loans - These loans are typically thought of as first time home buyer loans, but actually they can be used by anyone who meets the guidelines. They are usually more forgiving of low credit scores and allow higher debt ratios. Because of this there is an up front mortgage insurance premium (MIP) which is financed into the loan at the start plus a monthly MIP which is equivalent to 1/2% of the original loan amount divided by 12. One of the big advantages of an FHA loan (unlike traditional conventional loans which require that a certain percentage be the borrower's own funds) is that the down payment can be a gift from a relative allowing a buyer into a property who has little or no money to put down. Also on an FHA loan the seller is obligated to pay certain fees for the buyer which on a conventional loan the buyer would normally pay. One of the most popular FHA loan programs is the 2-1 Buy Down. At a cost of 2.625% of the loan amount (points) the buyer's first year payment is 2% lower than the market rate at closing, the second year is 1% lower than the market rate at closing, and years 3 through 30 are at the market rate at closing. This allows the buyer to qualify at a lower interest rate and purchase more house, based on the assumption that his income will be going up in the years ahead.
VA loans - VA loans are available only to veterans who have VA eligibility. In order to obtain a VA loan, the veteran must acquire from the Veteran's Administration his Certificate of Eligibility or DD-214. VA loans actually allow the highest debt ratios, 44% of all debt combined, and the Veteran is able to literally get into a home with $1 down because the seller is allowed to pay all of the Veteran's closing costs. (Usually the sales price is adjusted to cover the cost of the seller's contribution!) VA loans are also the only kind of loan that may be legally "assumed" by another buyer on a contract for sale without prior permission from the existing lender. This should only be attempted with help from a competent Realtor!!! The terms under which this type of assumption can be done are extremely complicated. And until the new buyer either pays off the existing loan or qualifies to assume it with the lender, the veteran remains liable for the balance which is owed.
First time home buyer loans (state money) - Periodically during each year the State of Nevada will allocate funds to go towards mortgages for first time homebuyers. This is called a state money loan and typically will run 1/2 to 3/4% lower than the current market rate.
There may also be a contribution from the state towards the buyer's
down payment. This allows a first time buyer to qualify for a better house than he might otherwise be able to afford. There are certain restrictions which apply to this loan including maximum income a buyer may have and maximum sales price allowed. Once a property has been identified, the buyer must then wait for approval of his fund allocation. If the buyer ever moves out of the house it must either be sold or the loan may be assumed by another buyer who must also qualify under the state guidelines. (These properties may not be turned into rental units.) Depending on how long a buyer has occupied the home, upon sale he may be required to pay a percentage of the proceeds on the home to the state.
Loans that are no longer available in most markets:
Low or no money down loans - There
was a proliferation of these loan products during the "boom" years designed to help both first time buyers and those with no savings. Most
were combined first and second trust deeds totaling 100% of the
purchase price. But with the crash of the real estate market and the
large percentage of borrowers just walking away from properties
where they had nothing invested, these loans are no longer
available.
Stated Income Loans
- This was another type of loan popular during the "boom"
years. These loans were used when a buyer's proven income was not sufficient to qualify for the
amount of loan he needed. But usually the buyer's credit was great and perhaps
there were other sources of income which are not acceptable to the
lender such as a part-time job. But again, with the decline of the
market, these loans were discontinued.
No asset verification loans - When a buyer is making his down payment the lender normally has to track the funds, verifying that they came from the buyer's own accounts. If the buyer is receiving the down payment from other sources that are not "lender approved" (trust funds, gift from someone other than a relative, etc) he may have to choose a no asset verification loan. This loan type usually carries a higher interest rate of 1 to 2% above market.
80/10/10 loans - When a buyer has 10% of the purchase price as his down payment he has to pay the mortgage insurance premium as part of his monthly payment. The mortgage insurance premium portion of this payment is not tax deductible. Many times it makes more sense to take out a 10% second mortgage. Since the first mortgage is now only at 80% of the loan to value there is no mortgage insurance required. Even though the interest rate is higher, the payment is usually less than with the mortgage insurance and all of it is now tax deductible. Also if the buyer does pay off the second mortgage he does not even have to go through the process of petitioning to have the mortgage insurance taken off. Sometimes the seller can even be persuaded to carry this second mortgage. There are other variations on this loan including an 80/15/5 (buyer puts down only 5%) and even possibly an 80/20 (buyer puts down nothing).
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