Popular Loan Types and Your Buying Power

money-7There are three types of loans (conventional, FHA and VA loans) that are popular in the Tampa Bay Market.  As a realtor, it is important to help the prospective home buyer with a general ideal of what they can afford (AKA their buying power) in lieu of a pre qualification from a lender.

Traditionally, lenders require 20 percent of the home’s purchase price as a down payment.  However, many lenders now offer loans that require less than 20 percent down with some as low as 5 percent on conventional loans. If a 20 percent down payment is not made, lenders usually require the home buyer to purchase private mortgage insurance (PMI) to protect the lender in case the home buyer fails to pay.  There are three primary loans that are seen in the Tampa Bay market, which include conventional, FHA, and VA Loans.

Conventional Loans

loan_application_clip_art_24699Conventional loans are fairly conservative loans and are typically used by the home buyers with higher down payments and better credit.  These loans come in a variety of options (Adjustable and Fixed Rate Mortgages) and terms.

According to Credit.com, conventional loans are slightly more restrictive.  Buyers with a loan-to-value ratio above 90% can ask a seller to pay 3% of the purchase price. If the loan-to-value-ratio is between 75% and 90%, sellers can pay up to 6%. Buyers with a loan-to-value ratio less than 75% can ask sellers to contribute up to 9%. Private mortgage insurance (PMI) is applicable to conventional loans under 80%. PMI can be removed once loan-to-value ratio (LTV) reaches 80%.

Unlike PMI, FHA’s MIP lasts for the life of the loan.  PMI is lower than MIP, which is another advantage of a conventional loan.

FHA Loans

moneyhands_217w_gifLoans backed by FHA are popular because the FICO score requirement of 580 is lower than what is required for conventional mortgages and the down payment can be as low as 3.5%.  The Hillsborough County (Tampa) loan limits is currently $271,050 for a single family home.  This is a very good option for most people with bad credit and/or a small down payment.  Keep in mind that any offer should include seller paid some of the buyers’ prepaids, closing costs, and non-allowables.  FHA rules do allow sellers to give up to 6 percent of the home’s purchase price for closing costs.

FHA Requires a Mortgage Insurance Premium (MIP) as part of your monthly mortgage payment is what makes the reduced down payment on your mortgage possible.  FHA uses these payments to insure your lender against losses if the loan goes to foreclosure, which limits the liability of the lender.  As of January 26, 2015, The MIP is calculates on a base loan amount times (.85% for 30 year term or 0.45% for 15 year term) divided by 12 months.  In addition to MIP, FHA’s Mutual Mortgage Insurance Fund (MMIF) has a rate to 1.75% at the loan closing.  Since these loans are insured for the life of the loan, their interest rate is typically better than conventional loans.  This applies regardless of the amortization term or LTV ratio.  The following is a FHA Loan example:

FHA Loans

Please note that this is an example and parameters could and can change.  I suggest that you contact a mortgage professional for more information.

VA Loans

IMG_4140Almost all active-duty military and veterans qualify for Veterans Affairs mortgages including aany reservists and National Guard members and spouses of military members who died while on active duty or as a result of a service-connected disability.  Unlike FHA loans, VA loans are guaranteed.  There is a funding fee that ranges from 1.25% to 3.3% of the loan amount.  Borrowers can qualify for 100% financing. VA loans allow the seller to pay all of the buyer’s mortgage-related closing costs and up to 4% of the purchase price in concessions, which can cover things like prepaid taxes and insurance and even paying off collections, judgments or leases at closing.  I have sold new homes where the lenders actually paid the buyer at closing.

Thinking of buying or selling real estate?

KW1784102f20KW_thumb.jpgYou should consider using a realtor.  If you are interested in buying real estate (new home, existing home, or commercial property), please contact me (Alan Lane with Keller Williams Realty at 2119 W Brandon Blvd, Brandon, Florida  33511).  As a life long resident of Central Florida, I can help you find the right property for you whether it is in Lakeland or as far south as Sarasota.  The Keller Williams offices of  ”Suburban Tampa” include the offices in Brandon, Plant City, Lithia (Fishhawk Ranch), and our newest office in Valrico.  My email address is alanlane66@gmail.com, or call me at 813.205.9280.  If you are just starting your search, you can search the MLS for real estate opportunities on my website at this link.

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