In a year that continues to defy “normal”, one thing that has been consistent is the strong housing market in our area. While many of us have purchased and sold homes, there’s much to know as it relates to the financial aspects of the process.
I’ve invited my friend Cheryl New of Guild Mortgage to answer a few questions that I bet you’ve wondered about as well (or maybe just me). Cheryl is a Branch Manager and Mortgage Loan Consultant for Guild and has won many awards for her production and expertise in the lending field. She’s an expert so I was glad she agreed to be a part of this.
1. What are the primary differences between FHA, VA, USDA and conventional loans?
Cheryl: USDA is a rural development loan, only offered in specific rural areas so both the property and borrower must qualify; maximum income earnings are area dependent. Zero down, lower mortgage insurance than FHA; however, higher credit scores can be needed for approval and debt to income requirements are lower so a little tougher to qualify. FHA allows for 3.5% down, lower credit scores and higher debt to income; maximum loan amount is determined by county. VA allows for 100% financing up to $510,400. loan amount, down payment requirement for higher loan amounts are calculated depending on VA eligibility. Both USDA and FHA have split mortgage insurance; a portion financed up front and monthly as well even if a borrower contributes 20% down. VA has a one time up front financing fee unless the borrower has 10% or more disability rating with VA. Conventional lending is most often best suited for higher credit score and lower debt to income borrowers as there is no mortgage insurance with 20% down payment and if less than 20% down the cost is factored on credit score.
2. What are the most common issues you see as people attempt to get mortgage lending?
Cheryl: Better stated as we see the most success with obtaining mortgage lending by those who plan in advance, getting prequalified when they begin THINKING ABOUT buying a home so we can help work through any potential concerns such as credit score improvement, collections, a plan for down payment even if that means using down payment assistance, analyzing debt to income ratios, etc. Advance planning is key to success and for even knowing what sales price someone can or wants to be shopping in. They may think they want a 350K home, but may not want the associated payment or visa versa may have no idea they would be comfortable with the payment on a 400K home. Shopping in the wrong price range rarely ends in joy and excitement.
3. What are the 3-5 most important things proposed buyers can do in advance of meeting with mortgage lender to help make the process smoother?
Cheryl: Most qualifications are now done on line so a very complete loan application detailing 2 full years of employment and residence history, along with providing any requested documentation as quickly as possible. Due to the availability of on line information, there is no longer a standard list such as paystubs, bank statements, etc.
4. What are the differences in lending for single family residential vs manufactured homes?
Cheryl: The loan programs are basically the same. Manufactured homes must be in their original delivery location and for FHA, VA, or USDA an Engineering Certificate is required to prove the home was installed according to HUD specifications for manufactured homes. Conventional loans require an Engineering Letter documenting any additions or modifications that pierce the home were done so according to HUD specifications for manufactured homes. Singlewide manufactured homes do not allow for modification of any kind, including an ATTACHED deck or roof and are limited to 10 acres.
5. What are the differences between pre-qualified and pre-approved?
Cheryl: Prequalified indicates the file has been reviewed and approved according to the information provided by the borrower. Preapproved indicates the lender has reviewed the actual documentation to support the application such as income, assets, liabilities, child support orders, etc. to support the approval.