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Home Loans & Mortgage Update

For many, owning a home is part of the American dream. For most homeowners in America, getting a mortgage is just one of the steps it takes to get there.  A simple definition of a mortgage is a type of loan you can use to buy or refinance a home. Mortgages are also referred to as “mortgage loans.” Mortgages are a way to buy a home without having all the cash upfront.

Most people who buy a home do so with a mortgage. A mortgage is a necessity if you can’t pay the full cost of a home out of pocket.  To qualify for the loan, you must meet certain eligibility requirements. Therefore, a person who gets a mortgage will most likely be someone with a stable and reliable income, a debt-to-income ratio of less than 50% and a decent credit score (at least 580 for FHA loans or 620 for conventional loans).

Mortgages are “secured” loans. With a secured loan, the borrower promises collateral to the lender in the event that they stop making payments. In the case of a mortgage, the collateral is the home. If you stop making payments on your mortgage, your lender can take possession of your home, in a process known as foreclosure.

TYPES OF LOAN

There are many types of mortgage loans. Each comes with different requirements, interest rates and benefits. Here are some of the most common types you might hear about when you’re applying for a mortgage.

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CONVENTIONAL LOANS

The phrase “conventional loan” refers to any loan that’s not backed or guaranteed by the federal government. There are two main categories of conventional loans:

Conforming loans:  Conforming loans have maximum loan amounts that are set by the government. Other rules for conforming loans are set by Fannie Mae or Freddie Mac, companies that provide backing for conforming loans.

Non-conforming loans:  Non-conforming loans are less standardized. Eligibility, pricing, and features can vary widely by lender, so it’s particularly important to shop around and compare several offers.

Generally, lenders require you to pay private mortgage insurance (PMI) on many conventional loans when you put down less than 20 percent of the home’s purchase price.

PROS AND CONS

Pros of conventional mortgages

  • Can be used for a primary home, second home or investment property

  • Overall borrowing costs tend to be lower than other types of mortgages, even if interest rates are slightly higher

  • Can ask your lender to cancel PMI once you’ve reached 20 percent equity, or refinance to remove it

  • Can pay as little as 3 percent down on loans backed by Fannie Mae or Freddie Mac

Cons of conventional mortgages

  • Minimum FICO score of 620 or higher often required (the same applies for refinancing)

  • Higher down payment than government loans

  • Must have a debt-to-income (DTI) ratio of no more than 45 percent to 50 percent

  • Likely need to pay PMI if your down payment is less than 20 percent of the sales price

  • Significant documentation required to verify income, assets, down payment and employment

Conventional loans are ideal for borrowers with strong credit, a stable income and employment history, and a down payment of at least 3 percent.

GOVERNMENT-BACKED LOANS

Each government-backed loan has specific criteria you need to meet in order to qualify along with unique benefits, but you may be able to save on interest or down payment requirements if you qualify.

Pros Of Government-Backed Loans:

  • Possible to save on interest and down payments.

  • Less strict qualification requirements than conventional loans.

Cons Of Government-Backed Loans:

  • You must meet specific criteria to qualify.

  • Many types of government-backed loans have insurance premiums that are required which can result in higher borrowing costs.

Home Buyers Who Might Benefit:

  • Buyers who don’t qualify for conventional loans or have low cash savings.

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FHA LOANS

FHA loans are a popular choice because they have low down payment and credit score requirements. You can get an FHA loan with a down payment as low as 3.5% and a credit score of just 580.

These loans are backed by the Federal Housing Administration; this means the FHA will reimburse lenders if you default on your loan. This reduces the risk lenders are taking on by lending you the money; this means lenders can offer these loans to borrowers with lower credit scores and smaller down payments.

FHA loans:

  • Allow for down payments as low as 3.5 percent.

  • Allow lower credit scores than most conventional loans.

  • Have a maximum loan amount that varies by county. Learn your FHA loan limit.

  • For borrowers with good credit and a medium (10-15 percent) down payment, FHA loans tend to be more expensive than conventional loans. For borrowers with lower credit scores or a smaller down payment, FHA loans can often be the cheapest option.

But there are no hard-and-fast rules—a lot depends on the current market. If you’re not sure, ask lenders for quotes for both options and compare total costs to see which offers the best overall deal.

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VA LOANS

VA loans are for active-duty military members and veterans. Backed by the Department of Veterans Affairs, VA loans are a benefit of service for those who’ve served our country. VA loans are a great option because they provide flexible, low-interest mortgages. VA loans do not require a down payment or mortgage insurance, and closing costs are generally capped and may be paid by the seller. A funding fee is charged on VA loans as a percentage of the loan amount to help offset the program’s cost to taxpayers. This fee, as well as other closing costs, can be rolled into most VA loans or paid upfront at closing.

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USDA LOANS

USDA loans are insured by the United States Department of Agriculture.  USDA loans help moderate- to low-income borrowers buy homes in rural areas. You must purchase a home in a USDA-eligible area and meet certain income limits to qualify. Some USDA loans do not require a down payment for eligible borrowers with low incomes.

USDA loans are only for homes in eligible rural areas (although many homes in the suburbs qualify as “rural” according to the USDA’s definition.). To get a USDA loan, your household income can’t exceed 115% of the area median income.

USDA loans are a good option for qualified borrowers because they allow you to buy a home with 0% down. For some, the guarantee fees required by the USDA program cost less than the FHA mortgage insurance premium.

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JUMBO LOANS

Jumbo mortgages are conventional types of mortgages that have non-conforming loan limits. This means the home price exceeds federal loan limits. For 2021, the maximum conforming loan limit for single-family homes in most of the U.S. is $548,250. In certain high-cost areas, the ceiling is $822,375. Jumbo loans are more common in higher-cost areas, and generally require more in-depth documentation to qualify.

Pros of jumbo mortgages

  • Can borrow more money to buy a home in an expensive area

  • Interest rates tend to be competitive with other conventional loans

Cons of jumbo mortgages

  • Down payment of at least 10 to 20 percent needed

  • A FICO score of 700 or higher typically required, although some lenders accept a minimum score of 660

  • Cannot have a DTI ratio above 45 percent

  • Must show you have significant assets (generally 10 percent of the loan amount) in cash or savings accounts

Jumbo loans make sense for more affluent buyers purchasing a high-end home. Jumbo borrowers should have good to excellent credit, a high income and a substantial down payment. Many reputable lenders offer jumbo loans at competitive rates. Keep in mind: Whether or not you need a jumbo loan is determined solely by how much financing you need, not by the purchase price of the property.

DOWN PAYMENT ASSISTANCE

Down payment assistance (DPA) helps homebuyers with grants or low-interest loans, reducing the amount they need to save for a down payment.  There are more than 2,000 of these programs nationwide. State, county, and city governments run many of them.  DPA programs vary by location, but many home buyers could be in line for thousands of dollars in down payment assistance if they qualify.

Florida Down Payment Assistance Programs

The Florida Assist (FL Assist)

Borrowers purchasing in the county selected may also be eligible to receive down payment assistance (DPA) through the FL Assist Second Mortgage Program. The FL Assist offers the following:

  • Up to $7,500.

  • 0%, deferred second mortgage.

The FL Assist is not forgivable. Repayment is deferred, except in the event of the sale, transfer, satisfaction of the first mortgage, refinancing of the property or until such a time the mortgagor ceases to occupy the property at which time, the Florida Assist will become payable in full.

3%, 4% and 5% HFA Preferred and HFA Advantage PLUS Second Mortgage

Borrowers utilizing these down payment and closing cost programs receive 3%, 4% or 5% of the total loan amount in a forgivable second mortgage. This second mortgage is forgiven at 20% a year over its 5-year term.

The Florida Homeownership Loan Program (FL HLP) Second Mortgage

Borrowers purchasing in the county selected may also be eligible to receive down payment assistance (DPA) through the FL HLP Second Mortgage Program. The FL HLP offers the following:

  • Up to $10,000.

  • 3% fully-amortizing, second mortgage.

  • 15-year term.

The FL HLP Second Mortgage carries a monthly payment. The remaining unpaid principal balance (UPB) is deferred, except in the event of the sale, transfer of deed, satisfaction of the first mortgage, refinancing of the property or until such a time the mortgagor(s) ceases to occupy the property as his/her primary residence at which time, the FL HLP Second Mortgage will become payable, in full.

Since the FL HLP Second Mortgage carries a monthly payment, this payment may need to be considered in a borrower’s debt-to-income (DTI) ratio when credit underwriting.

Orange County Down Payment Assistance (DPA)

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The Down Payment Assistance Program provides assistance to qualified first time homebuyers for down payment and closing costs associated with purchasing a home. The amount of assistance provided will be determined based on your household income. A household can qualify as very low income, low income, and moderate. Please refer to the income chart in the Learn More section of this web page to access the income limits. The amount of assistance available is from $15,000 to $35,000. All applicants must complete a pre-purchase homebuyer’s education program, and secure a first mortgage. The property to be purchased must be located in Orange County, outside the city limits of Orlando. For additional information, please refer to the Down Payment Assistance flyer and applicants are also encouraged to use the contact information below.

For more information, contact:

Housing and Community Development Division

525 East South Street,

Orlando, Florida 32801-2891

Email: housing@ocfl.net

Phone: (407) 836-5150

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RATE FACTORS

If you’re like most people, you want to get the lowest interest rate that you can find for your mortgage loan. But how is your interest rate determined? That can be difficult to figure out for even the savviest of mortgage shoppers. Knowing what factors determine your mortgage interest rate can help you better prepare for the homebuying process and for negotiating your mortgage loan.

Even saving a fraction of a percent on your interest rate can save you thousands of dollars over the life of your mortgage loan, so it definitely pays to prepare, shop around, and compare offers.

Armed with information, you can have confident conversations with lenders, ask questions, and understand your loan choices. Interest rates, just like gasoline prices, can fluctuate from day to day and from year to year. While movement in the interest rate market is outside of your control, it makes sense—just like with gasoline prices—to gain awareness about what’s typical. This way, you’ll have a sense of whether an interest rate quote you receive appears to be in the range of typical rates, or if you should ask more questions and continue to shop around.

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Here are seven key factors that affect your interest rate.

  1. Credit Scores

    Your credit score is one factor that can affect your interest rate. In general, consumers with higher credit scores receive lower interest rates than consumers with lower credit scores. Lenders use your credit scores to predict how reliable you’ll be in paying your loan. Credit scores are calculated based on the information in your credit report, which shows information about your credit history, including your loans, credit cards, and payment history.

    Before you start mortgage shopping, your first step should be to check your credit, and review your credit reports for errors. If you find any errors, dispute them with the credit reporting company. An error on your credit report can lead to a lower score, which can prevent you from qualifying for better loan rates and terms. It can take some time to resolve errors on your credit reports, so check your credit early in the process.

  2. Home Location

    Many lenders offer slightly different interest rates depending on what state you live in. Different lending institutions can offer different loan products and rates. Regardless of whether you are looking to buy in a rural or urban area, talking to multiple lenders will help you understand all of the options available to you.

  3. Home Price and Loan Amount

    Homebuyers can pay higher interest rates on loans that are particularly small or large. The amount you’ll need to borrow for your mortgage loan is the home price plus closing costs minus your down payment. Depending on your circumstances or mortgage loan type, your closing costs and mortgage insurance may be included in the amount of your mortgage loan, too.

    If you’ve already started shopping for homes, you may have an idea of the price range of the home you hope to buy. If you’re just getting started, real estate websites can help you get a sense of typical prices in the neighborhoods you’re interested in.

  4. Down Payment

    In general, a larger down payment means a lower interest rate, because lenders see a lower level of risk when you have more stake in the property. So if you can comfortably put 20 percent or more down, do it—you’ll usually get a lower interest rate.

    If you cannot make a down payment of 20 percent or more, lenders will usually require you to purchase mortgage insurance, sometimes known as private mortgage insurance (PMI). Mortgage insurance, which protects the lender in the event a borrower stops paying their loan, adds to the overall cost of your monthly mortgage loan payment.

    As you explore potential interest rates, you may find that you could be offered a slightly lower interest rate with a down payment just under 20 percent, compared with one of 20 percent or higher. That’s because you’re paying mortgage insurance—which lowers the risk for your lender.

    It’s important to keep in mind the overall cost of a mortgage. The larger the down payment, the lower the overall cost to borrow. Getting a lower interest rate can save you money over time. But even if you find you’ll get a slightly lower interest rate with a down payment less than 20 percent, your total cost to borrow will likely be greater since you’ll need to make the additional monthly mortgage insurance payments. That’s why it’s important to look at your total cost to borrow, rather than just the interest rate.

  5. Loan Term

    The term, or duration, of your loan is how long you have to repay the loan. In general, shorter-term loans have lower interest rates and lower overall costs, but higher monthly payments. A lot depends on the specifics—exactly how much lower the amount you’ll pay in interest and how much higher the monthly payments could be depends on the length of the loans you're looking at as well as the interest rate.

  6. Interest Rate Type

    Interest rates come in two basic types: fixed and adjustable. Fixed interest rates don’t change over time. Adjustable rates may have an initial fixed period, after which they go up or down each period based on the market. Your initial interest rate may be lower with an adjustable-rate loan than with a fixed rate loan, but that rate might increase significantly later on.

  7. Loan Type

    There are several broad categories of mortgage loans, such as conventional, FHA, USDA, and VA loans. Lenders decide which products to offer, and loan types have different eligibility requirements. Rates can be significantly different depending on what loan type you choose. Talking to multiple lenders can help you better understand all of the options available to you.

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FLORIDA QUARTERLY REVIEW

Florida’s housing market continues to show strong gains in the second quarter with more closed sales, rising median prices and more new listings than compared to Q2 reports from 2021. 

Second quarter closed sales of existing single-family homes increased by 43.3 percent year-over-year, and were up nearly 16 percent compared to the 2Q 2020.  Sales growth in the condo and townhouse resale market was even stronger, rising 117 percent compared to last year and up by almost 44 percent compared to two years ago.

New listings of single-family homes in 2Q 2021 were up 24.2 percent versus a year ago and over 8 percent compared to 2019. In the condo and townhouse category, new listings were up 27 percent compared to 2020 and over 15 percent compared to 2019.

According to Freddie Mac, the interest rate for a 30-year fixed-rate mortgage averaged 3.0 percent for the second quarter of 2021, down from the 3.23 percent average recorded during the same quarter a year earlier.

SINGLE FAMILY HOMES

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TOWNHOMES & CONDOS

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The IDEA Club

SCOTT PRITCHETT

PLATINUM ADVANTAGE MORTGAGE

Whether you’re buying, selling, refinancing, or building your dream home, you have a lot riding on your loan officer. Since market conditions and mortgage programs change frequently, you need to make sure you’re dealing with a top professional who is able to give you quick and accurate financial advice. As an experienced mortgage broker, Scott has the knowledge and expertise you need to explore the many financing options available.

“I’m a mortgage broker with more than 22 years of experience in various areas of banking & finance. My customers choose to work with me because I’m trustworthy, plain spoken, and responsive. I use my broad banking and finance background to overcome hurdles and help my clients get the best possible mortgage for their individual needs. As a husband and father of three, I understand the importance of owning a safe and affordable home, and that’s why I work so hard to see my clients achieve the same dream. Call me today to see how I can help you finance your dream home. 407-765-1170”

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