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Comparing Loan Programs

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By Jason Kotar

RISMEDIA, July 31, 2008-Recently, while teaching a class on VA loans to Realtors, I asked a question. “How many of you have ever asked your client if they were eligible for a Veteran’s loan?” Of the 35 attendees, not one person raised their hand.

Similarly, while doing research on USDA Rural Development Loan programs, I was told by A USDA employee that Realtors were not generally aware of Rural Development loan programs. Obviously, there are exceptions to these two cases dependent upon the part of the country that you live.

As we have written previously, your best bet for loan programs are VA, USDA Rural Development, FHA or loans that lenders will portfolio. Conventional loan programs in most parts of the country generally require 620 credit score and a 5-10% down payment and mortgage insurance. Below is a quick reference guide comparing the following loan programs:

  USDA  FHA  VA  Fannie Mae 
Front Ratio*  29%  29%  none  28% 
Back Ratio* 41%   41-43%  41%  36% 
Down Payment 0% 3.5%  0%  5-10% 
Loan terms 30 years  15-30  15-30  15-30 
Interest Rates  Market  Market  Market  Market 
Mtg Insurance  None   Yes  None  Yes 
Funding Fee/Mtg Ins. Premium 2% of loan  1.5%  2.15-3.3%  N/A 
Reserves None   None None  Yes 
Source of closing costs  No limit   6% seller  4% seller  3-6% seller 

The only true 100% financing programs available are USDA and VA. Credit scoring is another issue with USDA, FHA and VA starting to use 580 as their base while Fannie Mae uses risk based pricing starting at 620.

Changes to FHA and Fannie Mae programs will continue to occur. Fannie Mae programs will tighten up with more restrictions as it continues risk mitigation efforts. FHA, on the other hand, will have its hands full trying to handle the unprecedented loan volumes of (pre-foreclosed) loans being forced on it by Congress.

* Front and back ratios are used in determining debt to income ratios used by lenders to determine the maximum mortgage allowed. The front ratio looks at how much of your monthly gross income will be used to support housing costs. The back end ratio adds monthly consumer debt to the housing costs.

Jason Kotar is president of Kotar & Associates. Contact him at (954) 734-3504 or e-mail JKotar@DiversityLG.com.

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