Creative Financing

What does this program do?  This program assists approved lenders in providing low- and moderate-income households the opportunity to own adequate, modest, decent, safe and sanitary dwellings as their primary residence in eligible rural areas. Eligible applicants may build, rehabilitate, improve or relocate a dwelling in an eligible rural area. The program provides a 90% loan note guarantee to approved lenders in order to reduce the risk of extending 100% loans to eligible rural home buyers. This can be a no money down loan. Ask your mortgage broker which areas qualify under the USDA standards. Who may apply for this program? Applicants must:
  • Meet income guidelines
  • Agree to personally occupy the dwelling as their primary residence
  • Be a U.S. Citizen, U.S. non-citizen national or Qualified Alien
  • Have the legal capacity to incur the loan obligation
  • Have not been suspended or debarred from participation in federal programs
  • Demonstrate the willingness to meet credit obligations in a timely manner
  • Purchase a property that meets all program criteria
How may funds be used? Funds backed by loan guarantees be used for:
  • New or existing residential property to be used as a permanent residence.  Closing cost and reasonable/customary expenses associated with the purchase may be included in the transaction
  • A site with a new or existing dwelling
  • Repairs and rehabilitation when associated with the purchase of an existing dwelling
  • Refinancing of eligible loans
  • Special design features or permanently installed equipment to accommodate a household member who has a physical disability
  • Reasonable and customary connection fees, assessments or the pro rata installment cost for utilities such as water, sewer, electricity and gas for which the buyer is liable
  • A pro rata share of real estate taxes that is due and payable on the property at the time of loan closing.  Funds can be allowed for the establishment of escrow accounts for real estate taxes and/or hazard and flood insurance premiums
  • Essential household equipment such as wall-to-wall carpeting, ovens, ranges, refrigerators, washers, dryers, heating and cooling equipment as long as the equipment is conveyed with the dwelling
  • Purchasing and installing measures to promote energy efficiency (e.g. insulation, double-paned glass and solar panels)
  • Installing fixed broadband service to the household as long as the equipment is conveyed with the dwelling
  • Site preparation costs, including grading, foundation plantings, seeding or sod installation, trees, walks, fences and driveways.
 

VA Loans

A VA loan is a loan guaranteed by the Veterans Administration (VA). This type of loan is only available to certain borrowers through VA-approved lenders. (The guarantee means that the lender is protected against loss if the borrower fails to repay the loan.) To get a VA loan, you must be:
  • a current member of the U.S. armed forces
  • a veteran
  • a reservist/national guard member, or
  • an eligible surviving spouse.
VA mortgage loans can be guaranteed with no money down and there is no private mortgage insurance requirement.

FHA Loans

A FHA loan is a loan insured by the Federal Housing Administration (FHA). If you default on the loan, the FHA will repay the bank's loss. Since the loan is insured, the lender can offer you good terms including:
  • a low down payment (as low as 3.5% of the purchase price)
  • the financing of some closing costs (which means they are included in the loan amount), and
  • low closing costs.
This type of loan is often easier to qualify for than a conventional mortgage and anyone can apply. However, FHA loans have a maximum loan limit that varies depending on the average cost of housing in a given region. Also, you’ll have to pay MIP (mortgage insurance premium) as part of an FHA loan. (Conventional mortgages have PMI and FHA loans have MIP.) The premiums that borrowers pay contribute to the Mutual Mortgage Insurance Fund. FHA draws from this fund to pay lenders' claims when borrowers default.

Conventional Loans

When you apply for a home loan, you can apply for a government-backed loan (such as a FHA or VA loan) or a conventional loan, which is not insured or guaranteed by the federal government. This means that, unlike federally insured loans, conventional loans carry no guarantees for the lender if you fail to repay the loan. For this reason, if you make less than a 20% down payment on the property, you’ll have to pay for private mortgage insurance (PMI) when you get a conventional loan. (If you default on the loan, the mortgage insurance company makes sure the lender is paid in full.) Conventional mortgage loans must adhere to guidelines set by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) and are available to everyone, but they are more difficult to qualify for than VA and FHA loans. (Since there is no government insurance, conventional loans pose a higher risk for lenders so credit and income requirements are stricter than for FHA and VA mortgages). Generally, you can get a conventional loan if you:
  • have good credit
  • have a steady income, and
  • can afford the down payment.
An FHA 203k loan allows you to borrow money, using only one loan, for both home improvement and a home purchase. ... 203k loans are guaranteed by the FHA, which means lenders take less risk when offering this loan. As a result, it’s easier to get approved (especially with a lower interest rate) Eligibility: owner/occupants and nonprofit organizations can use FHA 203k, but not investors. The program is designed for one to four unit properties, but condo and town home owners can use the program for interior projects. You must borrow at least $5,000, and there are maximum limits set by the FHA that vary by location. For most people buying a single-family home that is not extravagant, you’ll fall into these limits. For smaller projects, the Streamlined 203 K loan  allows you to borrow less (with an easier process). You can borrow enough to finance 110% of the home’s projected value after improvement. Appraisers will review your plans and take the future value of your home into account. Interest rate: the interest rate will vary, depending on rates in general and your credit. Expect to pay a rate that’s 1% or so higher than you’d pay on a standard loan.

Think of this as the cost of easier approval (or bundling both your purchase and improvement loans into one). Plus, lenders need to do extra work tracking the progress of your project and handling payouts. At the same time, the loan is insured by the FHA, so lenders might offer a lower rate than you’d get elsewhere. Compare offers and get the loan that works best for you. 2023k loans can be either fixed rate or variable rate loans with repayment up to 30 years.

 
Also known as a purchase money mortgage, it is when the seller agrees to “lend” money to the buyer to purchase and close on the seller’s home. Usually sellers do this when money is tight, interest rates are high or when a buyer has difficulty qualifying for a conventional loan or meeting the purchase price. Seller financing differs from a traditional loan because the seller does not actually give the buyer cash to complete the purchase, as does the lender. Instead, it involves issuing a credit against the purchase price of the home. The buyer executes a promissory note or trust deed in the seller's favor. The seller may take back a second note or finance the entire purchase if he owns the home free and clear. The buyer makes a sizeable down payment and agrees to pay the seller directly every month. The interest rate on a purchase money note is negotiable, as are the other terms in a seller-financed transaction, and is generally influenced by current Treasury bill and certificate of deposit rates. The rate may be higher than those on conventional loans, and the length of the loan shorter, anywhere from five to 15 years.
It is a mortgage held by the seller that can be taken over by the buyer when a home is sold. Such loans are hard to find because most lenders stopped voluntarily writing them many years ago. Most new assumable loans today are adjustable rate mortgages. An assumable mortgage may be attractive if the interest rate on the existing loan is lower than the rate the buyer could otherwise get on a new mortgage, either because of current market conditions or the buyer’s poor credit history. To determine whether to assume an old loan or apply for a new one, pay close attention to the possible assumption fee, usually one point, and other terms of assumption set forth in the existing loan. One plus: there are generally few closing costs with an assumable loan. While an assumable mortgage can speed up the property sale, sellers should be careful about letting a buyer assume their mortgage. Depending on the state and terms of the mortgage, a seller may remain liable for the loan until it is paid off in full. Or the lender may go after both the seller and the buyer if the loan is not paid.
Also called an all-inclusive mortgage, it is where a new home loan is placed in a subordinate or secondary position to the original mortgage and the new loan includes the unpaid balance of the first. The wraparound allows the buyer to purchase a home without having to qualify for a loan or pay closing costs. The contract is made between the buyer and seller with the seller remaining on the original mortgage and title. The buyer pays the seller a fixed monthly amount and the seller uses part of this money towards the existing loan. The seller benefits by offering the buyer a loan at a higher interest rate than the existing mortgage, and the lender profits from the difference in interest in the two loans. Wraparounds are not for novices and cannot be used when there is a legally enforceable "due on sale" clause in the first mortgage. Consult an attorney if you are considering this type of financing.
Not to be confused with a biweekly mortgage, this type of home loan is also known as 5/25s and 7/23s. It has one interest rate for part of the life of the mortgage and a different rate for the remainder of the loan. Two steps are 30-year mortgages. They can either be convertible or nonconvertible. The 5/25s have a fixed interest rate for the first five years and either convert to a one-year adjustable rate or a 25-year fixed loan. The 7/23 has a fixed interest rate for the first seven years and then converts to a one-year adjustable rate or a 23-year fixed loan. The initial rate on the two step is lower than on a 30-year fixed mortgage, but higher than a one-year adjustable. Also, because the adjustment interval is longer, there is less risk initially than with an adjustable rate mortgage, or ARM.
It is an agreement between a renter and a landlord in which the renter signs a lease with an option to purchase the property. The option only binds the seller; the tenant has a choice to make a purchase or not. Lease options are common among buyers who would like to own a home but do not have enough money for the down payment and closing costs. A lease option may also be attractive to tenants who are working to improve bad credit before approaching a lender for a home loan. Under this arrangement, the landlord agrees to give a renter an exclusive option to purchase the property. The option price is usually determined at the outset, but not always, and the agreement states when the purchase should take place. A portion of the rent is used to make the future down payment. Most lenders will accept the down payment if the rental payments exceed the market rent and a valid lease-purchase agreement is in effect. Before you opt to do a lease option, find out as much as possible about how they work. Have an attorney review any paperwork before you and the tenant sign on the dotted line.
It is a short-term bank loan of the equity in the home you are selling. You may take out a bridge loan, or interim financing, to help with a knotty situation: closing on the home you are buying before you close on the property you are selling. This loan basically enables you to have a place to live after the closing on the old home. The key to a bridge loan is having a qualified buyer and a signed contract. Usually, the lender issuing the mortgage loan on the new home will write the interim financing as a personal note due at settlement on the property being sold. If, however, there is no buyer for the property you have up for sale, most lenders will place a lien on the property, thereby making that bridge loan a kind of second mortgage. Things to consider: interest rates are high, points are high, and there are costs and fees involved on bridge loans. It may be cheaper to borrow from your 401(K). Actually, any secured loan is acceptable to lenders for the down payment. So if you have stocks or bonds or an insurance policy, you can borrow against them as well.
It is a mortgage in which the entire unpaid principal becomes due and payable on a given date, five, ten, or any number of years in the future. The borrower must pay up, refinance, or lose the property. Interest rates on balloon mortgages are lower than for fixed-rate mortgages. So their monthly mortgage payments will be lower than the monthly payments for conventional mortgages. Balloon mortgages are a good way to keep monthly housing costs to a minimum if you plan to move or sale well within the period of the balloon.
If you borrow at or below the conventional loan limit for non-government mortgages, you have what is known as a "conforming" loan. If the amount surpasses the loan limit that is set by both Fannie Mae and Freddie Mac –now $333,700 for a single-family home – you would then have a "jumbo" loan and pay a somewhat higher rate because lenders believe these larger loans carry more risk. There are also loan limits on FHA and VA loans. Veterans who live in high-cost areas or who wish to buy or refinance a home loan above $240,000 can now use their VA status to do so. In instances where the new loan amount exceeds that price, the VA will allow the new loan amount to go up to $333,700 – if the veteran either puts down 25 percent of any amount over the $240,000 or has sufficient equity in the property to cover that amount.
Also called a fixed-period ARM, these crossbreed loans combine features of fixed-rate and adjustable-rate mortgages. They start out with a fixed interest rate for a number of years – usually 3, 5, 7 or 10 years – and then convert to an ARM. Initially, the interest rate for the fixed period of the loan is much lower than the rate on a fixed-rate, 30-year mortgage by about 1.5 percentage points. As a result, the hybrid allows borrowers to buy a lot more home than they can afford – but at greater risk. he terms and fees for these loans vary widely and when the fixed-rate period expires, homeowners could end up paying considerably more than the current rate of interest. Before considering a hybrid, pay close attention to the terms, fees, and prepayment penalties.
A reverse mortgage is an increasingly popular option for older Americans to convert home equity into cash. Money can then be used to cover home repairs, everyday living expenses, and medical bills. Instead of making monthly payments to a lender, the lender makes payments to the homeowner, who continues to own the home and hold title to it. According to the National Reverse Mortgage Lenders Association, the money given by the lender is tax-free and does not affect Social Security or Medicare benefits, although it may affect the homeowners’ eligibility for certain kinds of government assistance, including Medicaid. Homeowners must be at least 62 and own their own homes to get a reverse mortgage. No income or medical requirements are necessary to qualify, and they may be eligible even if they still owe money on a first or second mortgage. In fact, many seniors get reverse mortgages to pay off the original loan. A reverse mortgage is repaid when the property is sold or the owner moves. Should the owner die before the property is sold, the estate repays the loan, plus any interest that has accrued.
The biweekly mortgage has become increasingly popular as more people favor paying off their home loan early and reducing interest charges. Monthly payments on these loans are split in half, payable every two weeks. Because there are 52 weeks in a year, you actually have 26 half-payments, or the equivalent of 13 monthly payments per year instead of 12. Under the biweekly payment plan, a homeowner can save tens of thousands of dollars in interest and pay off their loan balance in less than 30 years.