Thursday, September 12, 2013

Simple Mortgage Definitions : Loan-To-Value (LTV)


Loan-to-Value : Defined in plain English

Simple Definition : Loan-To-Value (LTV)

In the world of mortgages, Loan-to-Value (LTV) is the amount of money you're borrowing as a percentage of your home's value.
Lenders use loan-to-value calculations on both purchase and refinance transactions. The math to determine your LTV may vary based on loan purpose, however.  
With a refinance, the LTV is equal to your loan size divided by your home's appraised value. For a purchase, LTV is based on the sales price of the home, unless the home appraises for less than its purchase price. When this happens, your home's LTV is based on the lower purchase price -- not the appraised value. 
Here are four simple examples to illustrate the concept of loan-to-value :

Buying a Home which appraises for more than its Purchase Price

  • House price: $100,000
  • Appraised value : $110,000
  • Downpayment: $20,000
  • Loan amount: $80,000
  • Loan-to-value (LTV) : 80%

Buying a Home which appraises for less than its Purchase Price

  • House price: $100,000
  • Appraised value : $90,000
  • Downpayment: $20,000
  • Loan amount: $80,000
  • Loan-to-value (LTV) : 89%

Refinancing a Home with no Second Mortgage

  • Home value: $100,000
  • Loan balance: $80,000
  • Equity: $20,000
  • Loan-to-value or LTV: 80%

Refinancing a Home with a Second Mortgage

  • Home value: $100,000
  • Loan balance: $80,000
  • Second loan balance : $10,000
  • Equity: $10,000
  • Loan-to-value or LTV: 90%
Whether you're buying or refinancing, though, your loan's loan-to-value is important because it helps to determine your mortgage rate and your loan eligibility.

High LTV Loans For Home Buyers

Loan-to-value is a key factor in your ability to get approved for a mortgage. In general, lenders prefer loans with low LTV because loans with low LTV represent less risk to the bank. 
That said, there are a number of loan programs specifically geared toward homeowners with high LTVs. There are even some programs which ignore loan-to-value altogether.
Here is a brief review of the more common high-LTV loan types.

VA Loan : Up to 100% LTV allowed

VA loans are loans guaranteed by the U.S. Department of Veterans Affairs. VA loan guidelines allow for 100% LTV, which means that no downpayment is required for an VA loan. VA mortgages are available to certain active-duty military servicepersons, veterans, military spouses, members of the Selected Reserve or National Guard, cadets at the U.S. Military, Air Force or Coast Guard Academy members, midshipman at the U.S. Naval Academy, World War II merchant seamen, U.S. Public Health Service officers and National Oceanic & Atmospheric Administration officers, among other groups.

USDA Loan : Up to 100% LTV allowed

USDA loans are loans insured by the U.S. Department of Agriculture. USDA loans allow for 100% LTV -- there is no downpayment required. USDA loans are sometimes known as Rural Housing Loans but it's a misnomer, of sorts. USDA loans are available in rural parts of the country, but they're available to many suburban homeowners, too. 

Conventional 97 : Up to 97% LTV allowed

Fannie Mae offers a special mortgage for homeowners with above-average credit scores called the Conventional 97. Via the Conventional 97 program, home buyers can make a downpayment of just 3 percent with access to below-average mortgage insurance rates. The program also allows for cash downpayment gifts. 

FHA Loan : Up to 96.5% LTV allowed

FHA loans are loans insured by the Federal Housing Administration, an agency within the U.S. Department of Housing and Urban Development (HUD). FHA mortgage guidelines require a downpayment of at least 3.5 percent. Unlike VA and USDA loans, FHA loans are not limited by military background or location -- there are no special eligibility requirements. FHA loans can be an especially good fit for home buyers with less-than-perfect credit scores, or for loan sizes over $625,500.

Conventional Loan : Up to 95% LTV allowed

Conventional loans are loans guaranteed by Fannie Mae or Freddie Mac. Both groups offer 95% LTV purchase mortgages, which means you will need to make a downpayment of 5 percent to qualify. 95% loans are available via most mortgage lenders, and private mortgage insurance (PMI) is often required. As compared to an FHA loan, conventional loans to 95 percent LTV are advised for homeowners with high credit scores only. In most other cases, FHA loans are preferred.

High LTV Loans For Refinancing Households

High-LTV mortgages are simpler for refinance transactions as compared for purchase ones. Multiple federal agencies make "no appraisal" refinance programs available to U.S. homeowners which means that loan-to-value is a non-factor for eligibility.
A few of those programs are highlighted below. 

The HARP 2.0 Program

The Home Affordable Refinance Program (HARP) was first launched late last decade. Also known as "The Obama Refi", HARP is available to homeowners with existing mortgages backed by Fannie Mae or Freddie Mac. HARP was revamped in 2011 as "HARP 2.0" and the latest iteration allows for unlimited LTV. No matter how little equity you have in your home, you can be HARP-eligible. 

FHA Streamline Refinance

The FHA Streamline Refinance is a special refinance program made available to homeowners with existing FHA mortgages. Official guidelines for the FHA Streamline Refinance waive appraisal requirements, which means that loans with unlimited LTV are allowed. Guidelines also state that income, employment and credit are not required to be verified. VA Streamline Refinance
The VA Streamline Refinance is a special refinance program for homeowners with existing VA home loans. The official name of the VA Streamline Refinance is the Interest Rate Reduction Refinance Loan (IRRRL). It's sometimes called the VA-to-VA loan. Similar to its FHA cousin, the VA Streamline Refinance does not require an appraisal, nor does it require the verification of income, employment or credit.

USDA Streamline Refinance

The USDA Streamline Refinance is available to homeowners with existing USDA mortgages only. Like the FHA and VA streamline programs, the USDA refinance waives the need for a home appraisal. The program is currently in pilot phase, and available in 19 states. 

What Is Your Maximum Loan-to-Value?

Loan-to-value is the ratio of how much you're borrowing to home much your home is worth. It's a simple formula but the basis for most mortgage lending. If you can grasp how LTV works, you can better pick the mortgage that suits your needs best.
To see what kind of mortgage rates you can get with your current LTV, use this rate quote form. Rates are available 24/7 online, and they're free.

Contact The Mortgage Mark with any questions!!

www.themortgagemark.com   mark@themortgagemark.com 

Monday, September 9, 2013

When You Sell Your Home With FHA Financing, Buyers Can “Assume” Your Mortgage And Its Interest Rate

When You Sell Your Home With FHA Financing, Buyers Can “Assume” Your Mortgage And Its Interest Rate


FHA Loan : The Benefits Of The FHA Mortgage
As the U.S. housing market recovers from last decade's downturn, today's home buyers aren't always flush with cash. For buyers with few funds for downpayment, loans via the Federal Housing Administration remain popular.
The FHA allows loans with as little as 3.5% down.

About The FHA Mortgage

The Federal Housing Administration (FHA) was established in 1934, a period of "heavy renting". The U.S. was emerging from The Great Depression. Just 4 in 10 households owned their homes.
At the time, mortgage terms were onerous. To get a loan meant to make a 50% downpayment; to agree to a loan term of 5 years or fewer; and, to make a "balloon" payment to the bank after the mortgage's first few years.
Few people could meet these terms so the FHA spawned a new method of finance.
Via its Mortgage Insurance Premium (MIP) program, the FHA created a self-sufficient insurance fund through which mortgage lenders could be "paid back" in the event of a loan default.
The FHA created a series of rules known as the FHA mortgage guidelines. The group agreed to provide to FHA-approved lenders insurance for all loans meeting the minimum standards as set forth by the guidelines.
The FHA MIP system gave banks confidence to make better loans with better terms for U.S. home buyers. Nationally, downpayment requirements dropped, loan terms lengthened, and mortgage rates were made affordable. Homeownership rates climbed.
Today, more than 80 years after its creating, the FHA remains as the only federal agency which has never taken even a dollar from U.S. taxpayers. The FHA is entirely self-sufficient.

U.S. Home Buyers Choose FHA Loans

In today's expanding economy, U.S. home buyers have mortgage loan options.
Conventional loans are available via Fannie Mae and Freddie Mac; Rural Housing Loans are available via the USDA; 100% loans are available via the Department of Veterans Affairs and its VA loan. Even jumbo mortgages and private loans have made a comeback.
However, the FHA loan remains in high demand. It's combination of low rates, low downpayment, and flexible guidelines has made it one of most common loan choices for home buyers today.
There are benefits to choosing an FHA loan. Here are some of the biggest.

FHA Mortgage Insurance Premiums

It may seem odd to call FHA mortgage insurance a benefit since it doesn't come free, however, FHA MIP is what makes the program possible. Without the MIP, FHA-approved lenders would have little reason to make FHA-insured loans. However, as a homeowner or home buyer, you have ways to limits your FHA MIP costs. You can use a 15-year mortgage term, for example; or make a downpayment of at least 5 percent. As a bonus perk, FHA-backed homeowners with loans from before June 2009 get access to special reduced MIP rates. Get today's rates to see the reduced MIP.

FHA Allows A 3.5% Downpayment

For today's home buyers, there are only a few mortgage options which allow for downpayments of five percent or less. The FHA is one of them. With an FHA mortgage, you can make a downpayment as small as 3.5%. This benefits home buyers who don't have a lot of money saved up for downpayment; and, home buyers who would rather save money for moving costs, emergency funds, or other needs.

FHA Allows 100% Gift Funds

The FHA is aggressive with respect to gifts for downpayment. Very few loans programs will allow your entire downpayment for a home to come from a gift. The FHA will. Via the FHA, your entire 3.5% downpayment can be a gift from parents or another relative, an employer, an approved charitable group, or a government homebuyer program. If you're using a downpayment gift, though, you'll need to follow the process. Click here for a mortgage rate and to request an FHA gift letter.

The FHA Doesn't Require A SSN

Not every home buyer will have a valid social security number and, according to the FHA, that's okay. FHA guidelines permits loans to employees of the World Bank and foreign embassies, for example. The FHA will also insure loans for non-permanent resident aliens.

There Are Many FHA-Approved Lenders

FHA loans can be funded by any FHA-approved lender. This includes mortgage lender, savings-and-loans institutions, and credit unions. The marketplace for FHA loans is giant, which creates competitive pressure among lenders to offer low FHA rates and low FHA fees. It pays to "shop around" on an FHA loan. Furthermore, because different banks use different methods to underwrite, your FHA loan can be declined by Bank A but approved by Bank B. If you meet the rules of the FHA, you can apply until your loan get approved! Click here to get some of today's low FHA rates.

There Are Many FHA Loan Products

Via the FHA, you can get a mortgage of almost any type. The agency is best-known for its traditional 30-year fixed-rate mortgage, but the FHA also offers a 15-year fixed rate loan as well as a series of adjustable-rate mortgages (ARMs). In addition, the FHA insures purchase-and-improvement loans for when you want to buy a home that needs repairs; 203k construction loans for when you want to buy a home that's newly built; and energy-efficiency loans for when you want to finance the costs of energy-efficiency improvements into your loan. The FHA also provides a full line of FHA refinance products.

The FHA Insures All Property Types

FHA home buyers are able to purchase any home type in any U.S. neighborhood -- whether in the 50 United States, the District of Columbia, or any U.S. territory. The FHA will insure single-family detached homes, 2-unit homes, 3-unit homes, 4-unit homes, condominiums, mobile homes and manufactured homes.

The FHA Has Flexible Credit Standards

Of all the available loan types in today's U.S. market, FHA loans are among the most forgiving with respect to credit standards. The FHA does not require "perfect credit" and even instructs its approved lenders to look beyond isolated "credit events" and to consider a borrower's complete credit history. Even borrowers with a recent foreclosure, short sale, deed-in-lieu or bankruptcy can be eligible for FHA financing. Mandatory 3-year waiting periods do not exist with an FHA loan.

The FHA Allows Larger Loan Sizes

A "loan limit" is the maximum allowable loan size for an area and, as another FHA benefit,FHA loan limits are much higher than conventional loan limits in many parts of the country. In Orange County, California, for example, or New York City, the FHA will insure up to $729,750. By contrast, conventional loans stop at $625,500. For 2-unit, 3-unit and 4-unit homes, FHA loan limits are even higher -- ranging up to $1,403,400.

FHA Loans Are Assumable

A little-known FHA benefit is that the agency will allow a home buyer to "assume" the existing FHA mortgage on home being purchased. The buyer must still qualify for the mortgage with its existing terms but, in a rising mortgage rate environment, it can be attractive to assume a home seller's loan. 5 years from now, for example, a buyer of an FHA-insured home can "inherit" a seller's sub-4 percent mortgage rate.

How Much FHA Loan Can You Afford?

The FHA mortgage program accounts for a significant share of U.S. home buyer loan activity and, during the first three month of 2013, the typical FHA loan averaged 94% loan-to-value. The program is in high demand among low-equity homeowners and buyers.
See what an FHA loan can do for you. Get today's interest rates. Find out how much home you can afford .

Contact The Mortgage Mark with any Questions!  www.themortgagemark.com