Fannie Mae was chartered in 1938, as the Federal National Mortgage Association (FNMA), with the responsibility of creating a secondary market for home mortgages. It operated under direct federal control. In 1968, the Federal National Mortgage Association was partitioned into two separate entities- one wholly owned by the government and known as the Government National Mortgage Association (Ginnie Mae), and the other to retain the Federal National Mortgage Association (Fannie Mae) name. It was privatized by legislation enacted in 1968 and became fully private in 1970.

Fannie Mae (along with Freddie Mac) sets the limit each year on the size of a conforming loan based on the October to October changes in mean home price. Mortgages above this limit are considered jumbo and super jumbo loans because Fannie Mae and Freddie Mac only buy conforming loans to repackage into the secondary market, making the demand for non-conforming loans much less. Thus, interest rates for jumbo and super jumbo loans are higher than for conforming loans.

According to the Office of Management and Budget (OMB), borrowers see mortgage rates 25-50 basis points lower because of what Fannie Mae and Freddie Mac do. This is reflected in lowered interest rates of up to a half percentage on each individual homebuyer’s mortgage, which translates to lower payments and increased consumer cash flow for other purposes. Fannie Mae and Freddie Mac also were the agencies that recommended that FICO scores be used in mortgage lending. Now, FICO scores are the mortgage industry standard for originating conventional loans, adjustable rate mortgages (ARMs) based on various prime rate indices, jumbo loans and 2nd home purchases as well as the popular cash out mortgage refinance loans.

Today, Fair Isaac estimates that more than 75% of all mortgage originations in the U.S. involve the FICO credit score. FICO scores are being used in almost every sector of the nation’s economy, and largely determine whether or not you will be approved for credit (including mortgage loans), what interest rates you will pay and what loan terms are available to you. This is why it is important to maintain a high FICO. But, if you’re a homeowner who’s had credit issues in the past, a timely mortgage refinance or home equity loan (second mortgage) for debt consolidation can help raise your score substantially and save you a lot of money.

Author: Mary Ny
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One of the biggest hurdles to getting into your first home is the down payment. Down payment gifts represent one way of dealing with this issue.

Down Payment Gifts

Down payments can be one of the hardest things to overcome for first time homebuyers. Down payments can be extremely expensive, but the problem is they are extremely important. Although no down payment mortgage loans can be sought out, those loans are tricky and generally carry high interest rates meaning many avoid them. However, first time home buyers still need a way to be able to meet the down payment so they can proceed with purchasing their home. One of the forms of assistance that can be found to achieve this is down payment gifts.

Many organizations offer down payment gift options to home buyers. Also called a down payment grant program, down payment gift programs are offered by many organizations which essentially allow sellers of homes to help buyers with the down payment so they can sell the home to the buyer. You see, technically, sellers are not allowed to help with the down payment costs of buyers. However, through these down payment gift programs, sellers can go through a third party organization and the organization will handle the down payments and charge a small fee for doing this process. This is completely legal and there are no problems with doing this.

However, there are some things to know. The home buyer must qualify for a loan that allows gift funds. The funds provided can be used for down payments and/or closing costs. These funds can be used for new or existing homes, and any funds not used must be returned to the organization.

Down payment gift programs are just one way to help encourage new buyers to go through with their objective to buy their very own home. Buying a home can be expensive and extremely difficult, especially for new buyers, and down payment gift options are just one way to help make the process a little bit easier and more manageable.

Author: Sergio Haros
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The Office of Federal Housing Enterprise Oversight (OFHEO) today released the maximum conforming loan limits that will be in effect through year-end as a result of The Economic Stimulus Act of 2008. That legislation permits Fannie Mae and Freddie Mac to raise their conforming loan limits in certain high-cost areas. The new limits are a function of median home prices as estimated by the U.S. Department of Housing and Urban Development (HUD).

The maximum for temporary conforming loan limits, which apply to loans originated in the period between July 1, 2007 and December 31, 2008, are as high as $729,750 for one-unit homes in the continental United States. Two, three and four-unit homes have higher limits as well. Fannie and Freddie are reported to be working out new underwriting standards and expect to begin offering the new loans soon.

The Fed’s economic stimulus package approved earlier this year called for temporary increases on conforming and FHA loan limits to allow troubled borrowers to refinance out of sub-prime loans and make it easier for many new buyers to qualify for mortgages in high-cost areas, particularly in California where home prices remain among the highest in the nation. As a secondary effect, it is hoped that this will act as a stimulus to encourage buyers back in to the market.

Before this relief, many buyers in California needed to finance with Jumbo loans just to purchase medium income homes in many of our metropolitan markets. A jumbo loan, or non-conforming loan, is simply a loan that exceeds the conforming loan limits. Because Fannie Mae and Freddie Mac do not buy these loans, the secondary market for jumbo loans is less competitive, and as a consequence, the interest rates for these loans are higher. Jumbo loans are also more stringent in overall requirements for qualifying. At some points in 2007, the credit crunch experienced by banks made Jumbo loans difficult to obtain, even for those borrowers with superior credit.

To view a list of the new FHA Mortgage Limits by county, go to: FHA Loan Limits by County

Author: Geoff Scowcroft
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Sometimes coming up with the cash for a down payment is the hardest part of any real estate purchase, especially for young couples entering the market for the first time. However, there are mortgages that let you put up a minimal down payment and get into housing. In this article, we’ll cover PMI mortgages, VA mortgages, FHA mortgages and FmHA home loans. Keep reading to learn how you can break down the down payment barrier.

1. PMI (Private Mortgage Insurance) Mortgages

If you can’t come up with a 20 percent down payment, your lender may offer you what’s called private mortgage insurance. Since your lender is taking on a greater risk, you will pay for extra insurance on that risk until you’ve built up enough equity in the home to hit that 20 percent marker.

If you go this route, keep an eye on your equity and principle balance so you don’t keep paying PMI after you’ve hit your equity marker.

2. Federal Housing Administration (FHA) Mortgages

The Federal Housing Administration (FHA) is an agency of the US Department of Housing and Urban Development (HUD). They help prospective homeowners through a program that insures private loans with down payments as low as 3 percent.

The actual money for the mortgage comes from a private lending institution, not the government, so you need to find a lender in your area that offers FHA mortgages. FHA maximum loan amounts will vary by region and country, but they tend to range between $172,000 and $400,000 for single-family homes.

3. Veterans’ Affairs (VA) Loans

VA loans are given to members of the armed forces, veterans or widows of veterans. The most attractive element of the VA loan is that no down payment is required whatsoever.

While the money still comes from a private lender, the Department of Veterans Affairs contributes by guaranteeing the loan at no cost to the veteran. To qualify, a veteran must have a discharge that is “other than dishonorable” and meet specific service duration requirements.

4. Farmers Home Administration (FmHA) Loans

In rural and farming areas, the Farmers Home Administration (FmHA) sometimes provides direct mortgages. If your income is low and falls within a specific limit requirement, you can use these mortgages to purchase a modest home on less than one acre of property with interest rates that are affordable and set according to your income.

This program is intended for rural buyers who can’t obtain financing elsewhere, and the money is distributed locally every quarter. Prospective homeowners should contact their local FmHA office for details.

Author: Ray Tolley
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Government sponsored loan programs, such as FHA loans, have been getting a lot of press lately. But, how does an FHA loan differ from a conventional loan? What are the advantages of each?

FHA

The Federal Housing Authority (FHA) was created in 1934 to help potential homeowners gain access to money to boost homeownership rates throughout the United States. FHA loan programs require very little money down on a new purchase (usually only 3% of the purchase price) and will lend up to 95% of the value of a home on a cash out refinance. This high loan-to-value ratio is the primary appeal of an FHA transaction.

The FHA is not a lender and does not actually make or guarantee home loans. They insure the loans an online mortgage lender can assist you in obtaining.

FHA currently only offers three loan programs:

30 year fixed

15 year fixed

5 year fixed ARM

FHA Mortgage Insurance Premiums (MIP)

Every FHA loan requires Mortgage Insurance Premiums (MIP) regardless of the down payment amount or loan to value. In addition, FHA loans require Up-front Mortgage Insurance Premiums (UFMIP). The UFMIP can be financed into the loan.

Up-front Mortgage Insurance Premium (UFMIP)

UFMIP is calculated at 1.50% of the base loan amount on all loans, regardless of the down payment amount. This insurance protects the lender against losses in the event that the borrower defaults on the loan.

**The entire amount of the UFMIP can be financed into the loan amount!**

For example:

If the FHA loan amount is $100,000 (base loan amount)
The mortgage insurance premium would be $1,500 ($100,000 x 1.50%)
The mortgage amount including MIP would be $101,500 ($100,000 + $1,500)

What really happens during an FHA mortgage transaction is that the borrower owes FHA a lump sum mortgage insurance premium. The lender making the FHA loan will actually lend the money for the premium to the borrower and send the money to FHA so that the mortgage will be insured.

Monthly Mortgage Insurance Premium

In addition to the UFMIP, there may be a monthly premium due as well. The monthly premium is .50% of the base loan amount.

On a 30 year fixed loan, the monthly payment would be calculated as follows:

$100,000 x .50% = $500.00 / 12 months = $41.67 per month

Maximum Loan Amount

FHA also has maximum loan amount restrictions that differ from county to county. Go to entp.hud.gov/idapp/html/hicostlook.cfm to view the maximum loan amount in your area.

Conventional loans

There are two types of conventional loans: conforming and jumbo.

Conforming loans

A conforming loan requires a loan amount of $417,000 or less. Conforming loans offer a larger variety of loan programs than FHA with a wide array of lending options. A conforming loan generally requires a larger down payment for a purchase (usually at least 5%) and has more restrictive guidelines on getting cash out of the property for a refinance.

The big advantage of conforming loans is that they do not require Private Mortgage Insurance (PMI) if the loan amount of the new first mortgage is 80% or less of the value of the home. The elimination of PMI can offer a significant savings over the life of the loan.

Additionally, conforming loans offer interest only options. FHA currently does not allow interest only payments.

The Economic Stimulus Act of 2008 temporarily expanded the conforming loan limits through 12/31/2008 to as high as $729,750 in an attempt to shore up the slumping housing market. The new conforming loan limits are based on 125% of a city’s median home price. Go to entp.hud.gov/idapp/html/hicostlook.cfm to find the temporary conforming loan limit in your area.

Jumbo loans

A jumbo loan is any loan amount over $417,000. Jumbo loans generally have slightly tighter lending standards and may require an additional down payment of at least 10% of the purchase price. Jumbo loan programs are as diverse as conforming loan programs and also do not require PMI if the loan amount is less than 80% of the value of the home.

Summary

So, to summarize, it is really all about loan-to-value. If you plan on putting down a small down payment, than an FHA loan is most likely your best bet. But, if you are putting down a larger down payment, a conventional loan may be the way to go.

Author: Dan A. Mason
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Most people automatically look for the lowest down payment option on mortgages. This knee jerk reaction is not always the best way to go.

The Down Payment and Mortgage Relationship

A down payment is usually required when obtaining a mortgage. Although there are some down payment free mortgages available, these can generally tend to carry higher interest rates as well. When seeking to obtain the best terms, most options, and lowest interest rates, it is important to have some money set aside to make a down payment with. In general, the average down payment rate on mortgages currently varies from 0 to 20 percent of the mortgage value depending on the type of loan and if it is guaranteed.

Any time you are getting a loan, the more money you can put into it yourself the better off you will be later. The more money you have to borrow means that there will be greater amounts of interest that will have to be paid in the long run. Also, the more money you can put down on any loan, including a mortgage, generally will mean that the lender will be able to make a better offer with a better plan and a lower interest rate, saving you additional money in high interest costs.

When seeking the lowest interest rate possible, have at least twenty percent of the mortgage value on hand. By being able to put a 20 percent down payment on a mortgage, you will be able to save yourself a ton of money on private mortgage insurance and overall interest payments. You will also be able to secure a pretty sizeable portion of the homes equity for your own use. Obviously, equity is extremely important and the less money you put down on the mortgage, meaning more the bank supplies, also means that the bank will own more of the house and therefore more of the equity on the house. You will then have no options in the future when it comes to that equity and also will not be able to benefit from the increase in that equity.

So be prepared to have some money set aside when looking for a mortgage. For those with no other options, no down payment mortgages can easily be found, but just remember what you are sacrificing in the long run. Be smart and be prepared and seek out the best plan for you.

Author: Sergio Haros
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If you’re like most Americans, your house may be the most expensive item you’ll ever buy, and your mortgage is likely the biggest loan you’ll ever need to secure. To ensure your long-term financial health, it’s important to take the time to find the best mortgage that offers the lowest interest rates and the smallest monthly payments, but enables you to pay off your house in a reasonable amount of time.

One of the biggest considerations is whether it’s best to go with a fixed rate mortgage or an adjustable rate mortgage. Which mortgage type is better in the short term? Which will save you money in the long run?

Fixed Rate vs. Adjustable Rate Mortgages
First, it’s important to understand what each of these terms means. A fixed rate mortgage is one whose interest rate will not change over the course of the loan’s term. Whether the mortgage is amortized over 5 years or 30, a fixed rate mortgage has an interest rate attached to it at the beginning of the loan, and that rate will not change unless the mortgage is refinanced.

By contrast, an adjustable rate mortgage (or “ARM”) does not have a fixed rate. An ARM has an initial interest rate set for a certain length of time (usually anywhere between 6 months and 1 year after the mortgage begins), but after that period the interest rate may go up or down, depending on the market and current interest rates. As a result, monthly payments can change when the interest rate of an adjustable rate mortgage adjusts.

Each option has its merits, and each one has disadvantages. Read on to determine which is best for you.

Fixed Rate Mortgage – Pros and Cons
The biggest advantage of a fixed rate mortgage is security and peace of mind. With a fixed rate mortgage, your interest rate and monthly payments will be the same until the mortgage ends. You know exactly how much you’ll have to pay for your home every month, with no surprises.

This can be a benefit for you if interest rates happen to go up, but it can also mean you might lose out on potential savings if rates should happen to go down during the term of your mortgage.

Adjustable Rate Mortgage – Pros and Cons
Adjustable rate mortgages have several advantages, but they’re also inherently risky. An ARM offers a substantially lower initial interest rate than a comparable fixed rate mortgage, enabling many homeowners to purchase more expensive houses than they might on a fixed rate mortgage, but without the same security.

If interest rates go down, your interest and monthly payments might stay the same or drop a little, but if interest rates peak around the time that your initial rate becomes adjustable, you may be in for a big surprise. Some homeowners are shocked when their interest rates and monthly payments spike dramatically – sometimes enough to force them to default on their house or seek another way to pay off their mortgage when payments become too high.

Some adjustable rate mortgages have low initial rates because they create negative equity – that is, the payments made during the initial period of the mortgage are so low as to not even pay all the interest that is accruing, much less touch the principal. The additional interest that is not covered by initial payments is added to the debt of the mortgage, so the homeowner is faced with mounting debt to pay off (or owns less and less of their home, if they made an initial down payment upon purchase). This can be a financially dangerous situation.

If you’re considering an ARM, it’s best to read all the fine print before signing. If you prefer a lower-risk situation, it’s safest to go with a fixed rate mortgage and rest assured that your payments won’t change in the foreseeable future.

Author: George Emerson
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Usually the greatest obstacle to making that home purchase is coming up with the infamous down payment, or as some like to call it, the “down painment.” This is particularly true of first-time home buyers, but can plague second-home buyers too. While saving is the most obvious way to muster up the needed cash, borrowing can be an answer too, especially to fill any gaps. Following are some unique and effective ways to both build your savings and expand your borrowing capacity.

Building Your Savings Many people think they’re already putting as much money into savings as they possibly can or are willing to. The truth is, you can still probably accumulate a nice chunk of change through simple changes in the way you invest your money and manage your spending. Fortunately, these changes need only be temporary. Don’t forget that any amounts you save will earn interest month by month, assuming you don’t just leave the money in a no-interest checking account.

Now that you’ve resolved to pack your own sandwiches, here are four more, potentially bigger-ticket ways to save towards a home. The first two focus on growing your money, while the latter two look at ways to curb your spending.

Put Your Existing Savings into CDs You’ve probably saved up some money already, or you wouldn’t be dreaming about buying that first or second home. The question is, where is that money being kept, and is it earning as much as interest as it could? One safe, yet potentially high-interest investment vehicle is a certificate of deposit (CD).

CDs are offered by banks or thrift institutions (savings and loans, and credit unions). They tend to offer higher rates of return than comparable low-risk investments such as savings accounts or money market accounts. Yet they aren’t as volatile or risky as stocks, bonds, or mutual funds.

If you’re planning to buy your home tomorrow (or you have a fear of commitment), stay away from CDs. The higher rates of return require you to lock in your money for a specified period of time, which could range from less than a month to ten or more years. The longer you lock in, the higher the rate of return. And if you withdraw money before the CD matures? You’ll be socked with a penalty, usually calculated as a portion of the interest you would have otherwise earned, such as 90 days’ worth of interest.

If, on the other hand, you’re still some years away from buying your home, you can take advantage of what’s known as a “ladder strategy.” This involves spreading your investments among CDs with differing maturity periods. The result is that you maximize your rate of return while retaining access to some of your money on a yearly basis.

For example, suppose you have $9,000 to invest in CDs over a three-year period. Rather than tying up the full amount in one, three-year CD that’s paying 4.17%, you could split the amount into even yearly increments, as follows:

–$3,000 into a one-year CD that’s paying 3.6%

–$3,000 into a two-year CD that’s paying 4%

–$3,000 into a three-year CD that’s paying 4.17%.

The result would give you a 3.92% average rate of return while freeing up $3,000 (plus interest) each year. If interest rates climb during one of these years, you can reinvest the freed-up money in another CD at a higher rate. If interest rates fall, you can shift the money to a better paying investment such as a short-term bond.

Reduce the Amount Withheld from Your Paycheck Do you receive a tax refund each year? If so, you’re probably having too much money taken out of your paycheck for income-tax purposes. The more personal allowances (married, single, number of dependents) you indicate on your Form W-4, the less money will be withheld from your paycheck.

What’s wrong with receiving a tax refund each year? Nothing, if you don’t mind giving Uncle Sam an annual interest-free loan. By overpaying throughout the year, you’re allowing the government to use your money in any way it wants until you finally claim what’s yours in April. You’re better off keeping that extra cash and investing it throughout the year, to help grow your down payment.

At any point during the year, you can change how much or how little is withheld from your paycheck by completing a new Form W-4 (available at http://www.irs.gov). Just don’t take too many personal allowances, or you may get walloped with a tax bill at the end of the year.

Stop Carrying Credit Card Balances “Put it on the plastic” can seem like such a good idea at the time. But if you habitually carry over credit card balances from month to month, you’re spending far too much on interest, and hurting your ability to save up for a home. The average U.S. household has more than $8,000 in credit card debt. Assuming an 18% interest rate and no additional charges added, it would take one of these average households 14.8 years to pay off that balance–and cost about $4,716 in interest alone. Ouch! That’s $4,716 less to put towards a home. One surefire way to save money is to pay off your credit cards in full each month. Consider the following three-step approach to ending your credit card balances:

–Step 1: Cut up all but one of your credit cards. Most people carry between three and four credit cards. If you’re a multiple-card carrier, your opportunity to charge something is that much higher. Remove the temptation by cutting up all but one of your cards. Which one should you spare? Keep the one with the lowest interest rate or best cash-back plan.

–Step 2: Pay with cash or not at all. If you can’t pay for something with the cash in your bank account, you can’t afford it–at least, not while you’re trying to pay off your credit card balances. (You don’t have to carry around actual cash–a checkbook or ATM card will do.) Instead of whipping out the plastic and adding to your ever-growing mound of debt, simply walk away from the item or service you’re considering.

–Step 3: Pay down high-interest cards first. Even a minor difference in interest rates can make a difference. Pay as much as you can each month on your highest-interest-rate card, and make the minimum payments on your other cards. Once the highest-rate card is paid off, follow the same approach for the next highest card, and so forth until all of your balances are wiped out. Once your credit card debt is under control, keep your spending habits in check by minimizing use of your credit card (not cards, since you cut up the others in Step 1). Take the money you were using to pay off your balances and squirrel it away in a low-risk investment such as a CD.

Minimize Nonessential Expenditures It’s amazing how much money you can spend without even thinking about it. Conversely, you can save an impressive amount by putting your brain into gear.

Minimizing, or even eliminating, nonessential expenditures is the quickest way to build up savings. What’s a nonessential expenditure? Anything that falls outside the big-three categories of food, shelter, or clothing–and even some of the more expensive or excessive items that fall within them. Regular restaurant visits, for example, are definitely a nonessential expenditure, despite the fact that you receive food there. Buying new slacks for work? A necessity. Buying a new Armani suit because your coworker has one? A nonessential expenditure.

Examples of other nonessential expenditures include:

–vacations and weekend getaways

-movies or renting DVDs

–cultural events (museums, theater, symphony)

–sporting events, and

–luxury shopping–or even compulsive discount shopping.

In the end, it’s up to you to determine what you believe to be a nonessential expenditure, as well as the degree to which you want to cut back. Remember, you don’t need to go cold turkey here, just turn it back a notch or two. Explore the many ways you can have fun for free–concerts in the park, no-entry-fee days at your local museum, a potluck or game night with friends, or a library book. The more nonessential expenditures you identify and the more you trim back, the faster you’ll be able to save. Borrowing What You Can’t Save Borrowing can certainly be a viable options to help boost the size of your down payment, which ideally should be 20% if you want to avoid being required to pay PMI (private mortgage insurance). Following are three non-traditional avenues for borrowing which can often provide you with a much lower interest rate or even no interest rate at all.

Borrowing Against a Life Insurance Policy If you have a life insurance policy, you may be able to borrow money from it for your home. You don’t even have to die first! You do, however, need to make sure you have a “permanent,” instead of a “term life” policy.

–Permanent life insurance provides coverage for as long as you live (assuming you pay your premiums in a timely manner). It combines the death protection of term life insurance (described below) with an investment component that builds a cash value over time. This is what you can borrow against (interest-free, no less). Plus, as long as your loan balance remains less than the cash balance in your life insurance account, you aren’t required to pay the loan back. Of course, when you die, the amount you borrowed will be deducted from the payout to your beneficiary.

–Term life insurance is meant to provide temporary life insurance to people on a limited budget, for a specific period of time. The time period can be anywhere from one to 30 years. Beneficiaries receive the face amount of the policy upon the insured person’s death. You can’t borrow against term life insurance. If reading your life-insurance policy materials leaves you unsure about which type of policy you have, contact the company that sold you the policy.

Getting a loan from family and friends You may be able to arrange a private loan from a family member, friend, or someone else you know–preferably in writing, with legal protections for your lender. A private loan offers potential benefits to everyone involved.

For you, it can be very flexible (depending on your relationship with your private lender). For example, you and your family member or friend may decide that you won’t start repaying the loan for several years, or your private lender may decide to periodically forgive loan payments throughout the year, perhaps as a means of family wealth transfer. And you can usually take a federal tax deduction for mortgage interest paid on that loan. For your lender, the benefits may include higher interest than he or she could obtain on a comparable investment such as a CD or money market account, as well as the satisfaction of keeping all interest payments within the family or a circle of friends.

Second-Home Buyers: Use the equity in your primary home If you’re looking to buy a second home, one way to come up with your down payment is to borrow against the equity in a primary home through a home equity loan, a home equity line of credit, or a cash-out refinance. Many people are confused about the differences between these three. (It doesn’t help that the phrases are sometimes mistakenly used interchangeably.) In each case, the loan is secured by your primary home.

–Home equity loan. Also called a second mortgage, this is a loan that you take out on top of the existing loan (first mortgage) on your primary home. A home equity loan usually has a fixed interest rate (one that doesn’t change over the life of the loan). The loan must be repaid over a set amount of time, typically less time than the loan length on your primary home-about ten, 15, or 20 years. Interest rates on home equity loans tend to be a point or two above the rate someone could get on a loan for a primary residence. Although you can use this loan towards your second home, your primary residence (and not your second home) will secure the loan.

–Home equity line of credit. Commonly referred to as a HLOC (pronounced “he-lock”), this is a revolving line of credit from which you draw. It’s not unlike a credit card. Your credit limit (the maximum amount you can borrow at any one time) is set by taking a percentage (usually around 75%) of your primary home’s appraised value and subtracting it from the outstanding balance on your mortgage. As with home equity loans, interest rates on HLOCs are usually a point or two above current home mortgage rates. HLOCs are available only as variable-rate loans (the interest rate moves up or down based on an external index). However, you can usually find a HLOC that offers a low introductory fixed rate for the first six or so months, after which the rate becomes variable.

–Cash-out refinance: This is a way to physically get cash out of your current house based on the equity you have built up. What you do is refinance your house for more than the amount you owe on it. You then put that extra money towards your second home. A cash-out refinance should cost you about the same, in terms of your interest rate and other loan-related costs, as if you had refinanced without taking out any extra cash. Just make sure you don’t take out too much–if the loan-to-value (LTV) ratio on your current house hits 80% or higher, you’ll have to pay for private mortgage insurance (PMI).

By using a combination of saving and borrowing, you can amass a nice chunk of change to cover your down payment, closing costs, and other upfront home-related expenses.

Author: Craig Venezia
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Jumbo loans are simply mortgages for higher-than-normal loan amounts. The gold standard of “normal” in the lending industry is what is called a “conforming, conventional” loan; that is, a loan that conforms to the secondary market agencies’ conventional underwriting requirements regarding credit, income/asset verification, property features, etc.

As of February 20th, 2007, the maximum amount for this “conforming” loan is $417,000 for a single unit property, $533,850 for a 2-unit property, $645,300 for a 3-unit property and $801,950 for a 4-unit property. The conventional limit for second loans is $208,500 and all loan limits are 50% higher for properties in Alaska, Hawaii, Guam, and the U.S. Virgin Islands. These limits change periodically with the real estate market.

Most lenders are willing to lend over and above these conforming amounts, but the larger jumbo loan amount translates into a larger risk for the lender should you default on the loan. Simply stated, the more the bank lends, the more it stands to lose if something goes wrong and they need to foreclose on that property.

Because the lender is taking an increase in risk with the size of the loan, they will typically charge a higher interest rate than they would on a loan that is within the “conventional” loan limits. All lenders vary in the premium they add for jumbo loans, but a good rule of thumb is to expect to pay an interest rate about 0.5% higher than you would for an otherwise identical conforming loan.

With conventional lenders, these jumbo loan amounts are set in stone, particularly if they are backed by Fannie Mae or Freddie Mac. In other words, a mortgage for $417,000 from one lender at 6% will almost always be about 6.5% for a loan of $417,001 from the same lender.

Author: C.L. Haehl
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Conforming loans are known as “A” loans. These are loans that are funded by Fannie Mae (FNMA) and Freddie Mac (FHLMC). Jumbo loans are loans that exceed the maximum limit funded by Fannie Mae and Freddie Mac (currently $417,000 for single family homes). Jumbo loans, bad credit mortgage loans and any other type of non-conforming loan are known as “B” loans. “B” loans are more typically referred to as sub-prime loans which are underwritten by sub-prime lenders. Because sub-prime lenders don’t have to follow conventional underwriting rules, they have more latitude in lending practices. As a result, even if you have low credit scores, you may still be able get a jumbo refinance loan for your large mortgage at near conventional rates.

Why Refinance with a Sub-prime Jumbo Loan? If you currently own a home, have equity, and need to consolidate and pay off credit card bills, collections and other loans, you can do a cash-out or debt consolidation refinance. How much equity do you have? The way a lender determines that is to calculate your home’s loan to value (LTV), which is the appraised value of your house minus the principal balance of your first mortgage. A refinance would allow you to pay off debt and get a fresh start, while saving a lot of money over high credit card interest rates. On top of that, up to 100% of the interest you pay could be tax deductible.

You may also be able to cash out your equity with a home equity loan (second mortgage). For second mortgages, lenders determine the equity by how much your home’s combined loan to value (CLTV) is. This is different from the LTV in the respect that the principal balances from ALL mortgages (typically 1st and 2nd) are subtracted from the property’s appraised value. Once again, you could end up saving a lot of money with the lower interest rates you’ll be paying and the interest you pay may be up to 100% tax deductible.

Refinancing to consolidate and pay off debt is an excellent way to raise your FICO credit scores. According to myfico.com, taking steps to improve your FICO scores can help you qualify for better rates from lenders. So, once your credit scores improve, you could refinance your first or second mortgage again for a better rate.

Author: Mary Ny
Article Source: EzineArticles.com
Provided by: Guest blogger