Allied Home Mortgage...

At times there seems to be an almost bewildering array of different types mortgages available for home purchasing. While some borrowers may find themselves limited to only one type of loan, another may be confronted with a large number of options. The purpose of this section is to acquaint you with the basic categories of loans. A competent loan officer is really critical in "fine tuning" your loan selection to minimize your costs.

One point worth mentioning early on... the vast majority of loans made for owner-occupied residences today have some kind of government insurance attached if the down payment is less than 20%. This insurance is paid for by the borrower and may be added into the loan balance or paid monthly--or both. This insurance premium is variously identified as MIP, PMI or "Funding Fee".

FHA Loans:

Loans written under the guidelines of the Federal Housing Administration are among the most popular in the U.S. For many home buyers they are easy to qualify for and have a lower down payment than conventional loans. Down payments range from a little over 2% to 5%. In Bexar County the maximum FHA loan amount of a single family residence is $172,632. The down payment requirements start near the 2% level on the smaller loans reaching the 5% level on the higher loans. Ratios (see "How Much Loan") are 29% & 41%. The house payment, alone, (including taxes & insurance) cannot exceed 29% of the borrower's gross income. The house payment plus monthly payments on all debt plus child support you pay cannot exceed 41%. There are both up front and monthly MIP charges.

VA Loans:

VA loans are guaranteed by the Veteran's Administration. To qualify for a VA loan requires a minimum of 90 days active duty during wartime or 181 continuous days of active duty during peacetime. Currently some reservists and National Guardsmen gain VA eligibily for 6 years of reserve service (there are limitations so check with the VA or your mortgage officer). VA loans require no down payment and in some cases allow a seller to pay part or all of the veterans closing costs on a home purchase. This capability can sometimes allow a veteran to move into a home for only a few hundred dollars or less. VA guidelines have only one ratio (41%) for all debt. This allows a veteran with a low car payment and few credit cards for example to purchase a more expensive home than he or she might under other types of loans. VA loans have a "funding fee" which is paid up front (usually by including it in the loan) which replaces the traditional mortgage insurance. Loan limits for VA loans in San Antonio are generally $216,000.

CONVENTIONAL Loans:

There are two broad categories of conventional loans: those that CONFORM to government guidelines and those that don't. Conforming loans are called just that--Conforming Loans. All others are called "non-conforming" loans. Conforming loans, as you might guess, are typically written at a lower interest rate. The minimum down payment is 5% and the maximum loan amount is $240,000 on conforming loans. Qualifying ratios (see "How Much Loan") are typically 28% and 36% on 5 or10% down loans and up to 33% - 38% on 20% or more down payment loans. A "Community Homebuyer" program for first time homebuyers may qualify a purchaser for the 33/38 ratios at 5% down.

Mortgage insurance applies to all conventional loans with less than 20% down. There are several different payment scenarios to choose from. The benefit of conventional loans is that costs can be lower than other types of loans. Also, conventional loans may be easier to obtain for self-employed persons and business owners.

Fixed Rate vs. Adjustable Rate Mortgages:

Mortgage interest rates may be fixed over the life of the loan or may change periodically as the market rate changes. For a standard fixed rate mortgage the amount of the principal and interest portion of the house payment will not change during the life of the loan. The total monthly payment will change only as property taxes or insurance premiums change. This can be a very comforting feature.

Adjustable rate mortgages start out at one rate but may change up or down over the years as the market changes. Because the lender has a lower risk (holding an 8% mortgage when the going rate is 9%) they generally charge a lower rate. When market rate is 8% for example, adjustable rate mortgages may be a 7%. This feature allows some buyers to purchase more expensive homes because the total payment (and hence their ratios) will be lower. The obvious risk is that the ARM could eventually go considerably above fixed rate loans that were originally written at the same time.

There are some other interesting aspects of adjustable rate mortgages if the buyer doesn't plan to remain in the home over 5 or 6 years. This should be discussed with a loan officer as it must be considered on a situation by situation basis.