The different types of home loans PART 2
There are so many different home loans and refinance options that it might be a struggle to understand your options with lenders and borrowers. The best thing to do is research, research and research once you’ve been pre-approved for a home loan or beforehand to understand your options.
These are home loans and mortgage loan refinance options available for you!
Conforming and non-conforming loans
Before we can understand the difference between conforming and non-conforming home loans offered, it’s important to know what is a conventional loan.
A conventional loan is also called a conforming or non-conforming loan because of the guidelines established by Fannie Mae and Freddie Mac. Both of these are government-sponsored enterprises that buy mortgages from lenders, sellers and investors. The main difference between conforming and non-conforming conventional loans is non-conforming is considered to be a larger loan between the two because it doesn’t follow the strict guidelines set in place.
Conforming home loans
The thing with a conforming loan is that it has to meet the specific guidelines set in place with the Fannie Mae and Freddie Mac standards and regulations. This all depends on your housing market. The average amount of money that can be taken out from this loan is about $424,000. However, in states like Alaska and Hawaii this changes because of the higher demand and more expensive housing marketing these states have.
All of this is under the Federal Housing Finance Agency (FHFA). There is one loan most commonly associated with conforming home loans and it is:
Conventional 97 mortgages: There has been updated guidelines set in place for this loan. All single-family homes can make a three percent down payment instead of the original five percent down payment.
This is similar to other conventional loans that are available. This is where the 97 comes into the name of this loan. This is because three percent out of 100 percent of the down payment is being paid up front. If a future home owner was to put down up to 20 percent this would change the loan-to-value ( LTV).
A non-conforming home loan is not purchased through Fannie Mae and Freddie Mac. These loans exceed the amount that can be given out to future homebuyers. These loans have a higher risk since the loan amount is at a higher amount. This is where jumbo and super jumbo loans are synonymous with this kind of home loan.
Jumbo loans: The simplest way to understand what a jumbo loan is when the loan exceeds the $424,000 loan guideline in place. These are for those with very high-incomes who have good credit and assets.
The million dollar homes and higher price rangers will be bought with jumbo or super jumbo loans. A super jumbo loan means the loan is EVEN higher than the jumbo loans. With both of these loans, a downpayment of 20 percent or higher might be needed.
This simply means taking your current mortgage and replacing it with a different one. That’s it. This is normally done because homebuyers want a new home, need a smaller monthly payment or are in need of home improvement. There are several different ways one can refinance their current home loans.
Rate and term refinance: A rate and term refinance means refinancing the existing mortgage to accommodate needs without changing the interest or terms of the current mortgage in place. A rate and term refinancing allows for homebuyers to have a better interest rate and a better term on the mortgage loan.
Home affordable refinance program (HARP): HARP is a Fannie Mae and Freddie Mac refinancing option through the FHFA. This helps current homeowners become equity rich in their current home. This means they will owe as much as their home is worth or more than the home’s worth to get equity out of the home.
Home equity loans: This is what happens when one follows through with the HARP plan. Home equity loans mean borrowing against your home’s value to have access to a large amount of money to qualify for a better loan or refinancing.
The common saying for those struggling with debt and finances, “We already took out two loans on the home,” means they have refinanced their home twice and used the money for debts, hospital bills and other large investments. You can find out if you have enough line of credit with HELOC.
Cash-out refinance: This refinancing option allows you to refinance your mortgage for more than you owe which gives you the option of taking cash back on the rest of the amount. If you refinance a home on a loan that is less than its current net worth, you have two options: take the money and put it back into the home with renovations or get a lower loan rate.
Streamline refinance: The basic understanding of a streamline refinance is that the existing FHA mortgage is limited in what the current homeowner needs. The homeowner can refinance and use borrower credit documentations and underwriting to change their needs. This is one of the most difficult refinance options there are because of the amount of paperwork and restrictions this offers homeowners.
The world of home loans and refinancing can be confusing and difficult to navigate.
Don’t worry, come talk to our team. We can help you navigate all of this and find someone to help you at the bank. We all can work together! Contact us today for more information.