What is a Conventional Loan?

A conventional loan is a type of mortgage loan that is not insured or guaranteed by the government. Instead, the loan is backed by private lenders, and its insurance is usually paid by the borrower.

Though conventional loans offer buyers more flexibility, they’re also riskier because they’re not insured by the federal government. This also means it can be harder for you to qualify for a conventional loan.

With a conventional loan, the lender is at risk if you default. If you can no longer make payments, the lender will try to recoup as much of the remaining balance as they can by selling your house through a short sale process or even foreclosure.

Because of this additional risk to the lender, you’re required to pay private mortgage insurance (PMI) on a conventional loan if you put less than 20% down.

When you meet with me or my team, we'll ask for documentation like recent pay stubs, tax returns, bank statements, and other financial information. We want to make sure you have a steady income and can make your monthly mortgage payments on time. You will also need a down payment to qualify for a conventional loan. Though you can put as little as 3% down when you get a conventional loan, we recommend putting at least 10% down. But 20% is even better because then you can avoid paying PMI!

Conventional mortgage borrowers typically make larger down payments than FHA borrowers, and they tend to have a more secure financial standing and are less likely to default.

A larger down payment means lower monthly payments. Plus, with the ever-increasing mortgage insurance premiums on FHA loans, payments for conventional loans that don’t require private mortgage insurance can be much more manageable in comparison.

In addition, with a conventional loan, you can cancel your mortgage insurance when the principal loan balance drops to 78% of the home’s value. FHA loans charge mortgage insurance premiums for the life of the loan.

What is an FHA Loan?

An FHA loan is a type of loan from the Federal Housing Administration for someone who might have a hard time getting approved for a conventional mortgage when buying a home.

Allowing down payments as low as 3.5% with a 580 middle credit score, FHA loans are helpful for buyers with limited savings or lower credit scores.

To get an FHA loan, you will need to work with an FHA-approved lender, which could be a bank, credit union or mortgage company. Then, the FHA provides a guarantee on the loan so your lender doesn’t lose money.

You'll need to satisfy a number of requirements to qualify for an FHA loan. It's important to note that these are the FHA's minimum requirements.

You also don't need to be a first time homeowner and there are no income stipulations, as well as you can purchase or refinance anywhere in the State of Texas with McGee Residential Mortgage, LLC.

Credit Score

The minimum credit score for an FHA loan is 580 at this time.

Debt-to-Income Ratio (DTI)

The FHA requires a DTI of less than 50, meaning that your total monthly debt payments can't be more than 50% of your pretax income. In some circumstances, the DTI can go as high as 56% with compensation factors. Debts included in the DIT also include debts that you aren't actively paying. For student loans in deferment, your FHA loan underwriter will include .5% of the loan's total as the monthly payment amount or what is reflected on the credit report. For other types of loans that you aren't currently repaying, underwriters will use 5% of the loan's total to calculate your DTI.

FHA Loan Benefits

What is a VA Loan?

A VA loan is a mortgage loan that’s issued by private lenders and backed by the U.S. Department of Veterans Affairs. It provides U.S. veterans, active duty service members, and widowed military spouses a quality loan to buy a home. VA loans were introduced as part of the GI Bill in 1944, but they’ve become increasingly popular in recent years. This type of loan is an attractive option because of it’s ease of qualification and doesn’t require a down payment or monthly mortgage insurance.

VA Loan Requirements

In order to get this loan when you're looking to buy a home, military personnel have to meet the VA’s specific service requirements. Generally, you’re eligible if you fall into one of these three categories:

1. You’re an active duty service member or an honorably discharged veteran who has 90 consecutive days of active service during wartime or 181 days of active service during peacetime.
2. You have served more than six years in the National Guard or the Selected Reserve.
3. You’re the spouse of a service member who died in the line of duty.

If you were to go through the application process, you will need a Certificate of Eligibility (COE) to show mortgage lenders that you qualify for a VA loan. You can apply for a COE through the VA website, by mail, or through your lender.

While a VA mortgage's qualifying requirements are more relaxed than those for a conventional loan, an applicant still needs to have decent credit and sufficient income to buy a home.  Also, the home being financed must serve as the primary residence.

Credit Score Requirements

The VA doesn’t set a minimum credit score to qualify for a loan. Instead, it requires a lender “to review the entire loan profile to make a lending decision,” according to the VA. At this time, the lenders minimum credit score is 580 with compensating factors.

VA loan debt-to-income ratio

The DTI is typically 41%. However, with compensating factors and automated approval, the DTI can be higher than 41%. The lender will need to see proof of an applicant’s ability to repay the loan.

Refinance

At this time, VA does not allow Home Equity loans in the State of Texas. They do allow regular rate/term refinances or Interest rate reduction refinance loans.

What is a Reverse Mortgage?

Reverse mortgages are designed for homeowners aged 62 and older. These types of loans are called “reverse” mortgages because the lender pays the homeowner. The money you receive from a reverse mortgage is tax-free and can be used for any purpose. Unlike conventional mortgages, you do not need to make any monthly payments if at least one borrower continues to live in the home.

Reverse Mortgage Requirements

• Be 62 years of age or older
• Own the property outright or paid-down a considerable amount
• Occupy the property as your principal residence
• Not be delinquent on any federal debt
• Have financial resources to continue to make timely payment of ongoing property charges such as property taxes, insurance, and Homeowner Association fees, etc.
• Participate in a consumer information session given by a HUD- approved HECM counselor
• Property must meet all FHA standards and flood requirements, be a single family home or a 2-4 unit home with one unit occupied by the borrower.
• Income, assets, monthly living expenses and credit history will be verified.

Types and Terms

• Adjustable Interest Rates: Tenure, Term, Line of Credit, Modified Tenure and Modified Term
• Fixed

Additional Loan Types

Farm & Ranch Loans

Hobby Farms, Rural Primary homes. These loans include fixed and ARM terms, up to 160 acres, may include production of livestock and crops with Ag Exemptions. May include 2nd homes on the property. Up to $2,000,000 on Hobby Farms.

Jumbo Loans

A jumbo loan is a mortgage used to finance properties that are too expensive for a conventional conforming loan. The maximum amount for a conforming loan is $548,250 in most counties, as determined by the Federal Housing Finance Agency (FHFA). Homes that exceed the local conforming loan limit require a jumbo loan.

USDA

The USDA Loan is a mortgage option available to some rural homebuyers which allows for 100% financing (no down payment but closing costs do apply). There are certain eligibility requirements which include the location of the property, income limits, and debt to income ratios. All USDA loans have an upfront and annual guarantee fee.  Property and income eligibility can be found at https://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do?pageAction=sfp.

Home Equity Loans

A home equity loan is a mortgage that gives you access to cash based on the value of your home. In Texas, you are limited to 80% of the appraised value and cannot refinance for 12 months. However, you can pay it off at any time.

Loan Document Checklist

• Drivers License or Identification Card
• Social Security Card
• Residential Address for Past 2 years - Did you rent or own?
• Income Verification (Name and address of Employer for past 2 years, as well as position, start date, and gross monthly/yearly income.
• Most recent 2 months of pay stubs, bank statements and any retirement accounts - with all pages.
• W-2's, K-1's or employment 1099's for the last two years.
• Copies of most recent tax return with all schedules.
• If Self Employed, most recent two years of personal and business tax returns with all schedules and year to date profit and loss statement.
• Additional income: Child support - Complete Divorce Decree. Social Security - Most recent years' Benefit Letter, etc. 
• Refinance: Most recent mortgage statement, proof of insurance, taxes and HOA if applicable, as well as existing survey.
• Additional documentation may be needed.

Mortgage Process

• Estimate your budget
• Contact McGee Residential Mortgage for a pre-approval
• Shop for your home and make an offer
• Order a home inspection
• Contact McGee Residential Mortgage to lock in your rate
• Provide necessary documentation to process your loan
• We will order your appraisal and send you a link for payment
• Your loan is turned into the processor and lender for review and conditional approval.
• Additional documentation is provided to the lender for review and Clear to Close.
• The initial 3 Day Closing Disclosure is sent to you prior to closing.
• Closing day is scheduled by your realtor and title company.
• Once your loan is funded you officially own your new home.  Congratulations!!