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Conventional Loans

 

A conventional loan is generally defined as a mortgage with equal monthly payments, 10, 15, 20 or 30-year terms, and a fixed interest rate established when the mortgage is created.

 

A conventional mortgage is also defined in terms of its "loan to value" ratio or LTV. An 80 percent LTV is the standard for conventional loans, a percentage which means that if a house costs $100,000, the lender will provide financing worth $80,000 (80 percent of the purchase price) and the borrower will put up $20,000 (20 percent). Closing costs are EXTRA AND ADDITIONAL above the $20,000. 

 

The qualifying ratio for a conventional loan is usually 28-38% of income.

 

All conventional loans with less than a 20% down payment are required to have a PMI (Private Mortgage Insurance).

 

2006 Conventional Loan Limits

First mortgages

One-family loans: $417,000

Two-family loans: $533,850

Three-family loans: $645,300

Four-family loans: $801,950

Note: Maximum original loan amounts are 50 percent higher for first mortgages on properties in Alaska, Hawaii, Guam and the U.S. Virgin Islands.

 

Second Mortgages

Alaska: $312,750

 

FHA Loans

 

An FHA loan is a federal assistance mortgage loan in the United States insured by the Federal Housing Administration.  The normal fixed mortgage may be repaid in monthly payments over 10, 15, 20, 25, or 30 years.

 

The Federal Housing Administration is a federal agency in the U.S. Department of Housing and Urban Development or HUD.  The purpose of the FHA is help lower income families purchase housing.  FHA allows borrowers with less than perfect credit to receive comparable interest rates to those with good credit.  FHA is not a lender but instead insures mortgage loans made by private lenders.  This insurance minimizes the financial risk of the borrower to the lender and allows the lender to offer a lower mortgage interest rate.

 

FHA loans have low down payment and closing costs, with the option to use gift money from friends, family or other sources for 100% of the down payment.  Flexible approval requirements help people who have less-than-perfect credit or lack a traditional credit history and expanded qualifying ratios for people with low-to-moderate incomes.  In 2006, FHA received approval to offer hybrid Adjustable Rate Programs (ARMs), in which the interest is fixed for the first 3 or 5 years, and is then adjusted annually.


 

FHA loans have no income limit, instead they have lending limits.  They allow you to buy a home with as little as a 3% down payment. The qualifying debt to income ratio for an FHA loan is usually 29-41%.

 

The downside is that an FHA loan may not offer enough money if you need a large mortgage. In addition, FHA loan have higher interest rates and mortgage insurance premiums that are paid for the life of the loan. Mortgage insurance premiums paid on an FHA loan are typically equal to 2.25% of the purchase price of the property with a renewal premium of .500% in subsequent years. Compare this to the mortgage insurance premium charged for a conventional program; typically as low as .500% (with 10% down payment) with a renewal rate as low as .300%.

 

2006 FHA Lending Limits – Anchorage, Alaska

One-family loans: $255,050

Two-family loans: $287,250

Three-family loans: $349,050

Four-family loans: $402,750

 

 

VA Loans

If you are a veteran or qualify by military service you may be eligible for a VA home.  The VA Fixed Rate Loan gives borrowers the option of financing their mortgage in 15, 20, 25, or 30 year terms.

 

VA mortgages, which are insured by the Department of Veterans Affairs, make buying a home easier and more affordable for veterans, reservists, and active-duty service members.  They offer some of the easiest approval requirements of any mortgage, including:

 

        No down payment requirement, so you can finance 100% of the purchase price

        The option to use gift money or secondary financing

        Flexible credit requirements

        Expanded qualifying ratios

        Origination fees and closing costs are limited

 

A VA funding fee of 0 to 3.3% of the loan amount must be paid to the VA, and can be financed on top of the total loan amount.

 

Should you try a VA home loan?

 

 

General Loan Information

 

Fixed rate loans are usually for 15 or 30 years.

        Pro: Homebuyers can determine exactly how much they will pay each month for the next 30 years.

        Con: Buyers pay a premium for predictability as an FRM will generally cost more than an ARM over the life of a 15 to 30 year home loan.

Tip: Get a fixed-rate mortgage if stability is important or if you have less confidence about the economy or job security.

An Adjustable Rate Mortgage is a fluid loan where the interest rate changes with fluctuations in the market. The first-year rate (otherwise known as the teaser rate) is generally a couple of percentage points below the market rate.

        Pro: Because interest rates are lower for an ARM, it is easier to borrow more. This can help first-time homebuyers afford more home.

        Con: Rising interest rates can create financial hardship if the new monthly mortgage payment rises beyond the owner's budget.

Tip: Get an ARM if you expect to stay in a house for less than five years.

 

A VA Hybrid Adjustable Rate Mortgage Loan is fixed for period of 3 or 5 years, and then adjusts annually thereafter. It allows a 1% annual interest rate adjustment after the initial fixed interest rate period, and a 5% interest rate cap over the life of the loan.

 

80/20 Mortgages: so named because consumers actually take out two mortgages – one for 80 percent of the home’s value, and the other for the remaining 20 percent.   This sidesteps the need for mortgage insurance by getting a "piggyback loan" -- a second mortgage to back up the first mortgage. The first and main mortgage is for 80 percent of the home's price. The piggyback loan is for 20 percent of the home's price, minus the down payment, if any. If you see mention of an 80-15-5 loan, it means that the borrower got a main mortgage of 80 percent of a home's purchase price, a piggyback loan for 15 percent, and made a 5-percent down payment. Myriad combinations, such as 80-10-10, are possible.

 

Interest-Only Loans:  Comparatively risky, [but] increasingly popular, product is the interest-only mortgage, where the buyer pays no principle, typically for 5 or 10 years. Beyond that, the interest rate fluctuates to the prevailing short-term rate and borrowers start repaying principle on an accelerated basis. These loans are popular among homebuyers who simply cannot afford a big monthly payment, and who are betting that their homes accumulate in value during the interest-only portion of the loan. If that happens, they can refinance after five years, using the home’s increased equity as the basis for a loan with better terms.

 

Second Mortgage Refinance Options

        Option1:    Consolidate your debts and existing high-rate line of credit with new Fixed Rate second mortgage.

        Option2:    Refinance your existing 2nd mortgage & your current 1st mortgage with one low rate fixed rate mortgage

 

We at Diamond Realty have been working closely with Mr. Paul Hansmeyer, Mortgage Loan Originator III of First National Bank, Alaska.  If you have any further questions or wish to get started with the loan process, please feel free to contact him at:

 

Paul Hansmeyer

101 W. 36th Avenue, Ste. 216 P.). Box 100720

Anchorage, AK 99510-0720

Work: 907-777-5622

Fax: 907-777-5681

 

In Anchorage, there are three main companies Diamond Reality and Paul Hansmeyer deal with for loans. For more information, please visit their sites:

 

Anchorage Neighborhood Housing Services, Inc.

480 W Tudor Rd

Anchorage, AK 99503

(907) 677-8491

 

Downpayment Assistance Program - Citywide

Downpayment Assistance Program - Targeted Neighborhoods

 

Cook Inlet Housing Authority

3510 Spenard Road, Suite 100

Anchorage, Alaska 99503

Tel: (907) 793-3000

Fax: (907) 793-3070

Email: info@cookinlethousing.org

 

Municipality of Anchorage – Department of Neighborhoods - HUD

3000 C. Street, Suite 401
Anchorage, AK 99503

Phone: (907) 677-9800
Toll-Free (in
Alaska only): (877) 302-9800
Fax: (907) 677-9803
TTY: (907) 677-9825
 
Colleen Bickford, Office Director
Contact the Director's Office
 
Office Hours: 8:00 a.m. to 4:30 p.m.,
Monday through Friday

 

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