1 Selecting the Type of Loan Based on Mortgage Loan Insurance n FHA - Federal Home Administration n VA - Veterans Administration n Conventional Based on Program n VHDA- Virginia Housing Development Authority n Assumptions - Assumes an existing loan with all existing terms - approval from lender is required.

2 Common Types of Mortgages n Fixed Rate –30 year, 15 year –Step Rate (“Buy Down”) 30 year, 15 year Lease Purchase n Adjustable Rate (ARM)

3 Loan Programs n Local / State Programs (PW Coop. Exten. / VHDA) n Nehemiah / HART / Future Assistance n FHA – Federal Housing Administration n Conventional n VA – Veterans Administration n FHA ARM n Subprime Lending

4 Conventional Financing n 0-5% down payment depending on program n Can be gifted or borrowed from a secure asset n No Income Limitations n May require Two Months House payment in reserve n Minimum credit score = Middle 620 n Maximum Loan amount up to $333,700

5 Conventional Financing n Fixed 30/25/20/15/10 Year n Adjustable Rate Mortgages 3/1, 5/1, 1/1 n Eliminate Private Mortgage Insurance with a 1 st and a 2 nd combination n 80% first mortgage, 15% second mortgage, 5% down payment combined Loan to Value 95% with no mortgage insurance n Example

6 Example n Sales Price n Down Payment (80/15/5) n 1st Mortgage (80%) n 1st Mortgage Payment (6.5%) n 2 nd Mortgage (15) n 2 nd Mortgage Payment (8.875%) n Taxes & Ins n Total Payment n 1 st Mortgage (Std. 95/5) n 1 st Payment n Mortgage Ins. n Taxes & Ins. n Total Payment $100,000 $5,000 $80,000 $505 $15,000 $119 $120 $744 $95,000 $600 $62 $120 $782

7 VA – Veterans Administration n Zero Down Payment n Seller can pay 100% of your closing costs and pre-paids (4% total) n Maximum Loan amount $240,000 – Jumbo up to $333,700 (effective 1/11/04; 25% down for $$ above $240K) n Requires Owner Occupy Property n Generous Single 41% debt ratios allowed n Can be used more than once (Special Rqmnts) –Funding Fee n DAP eligible

8 FHA – Federal Housing Administration n Maximum Loan Amounts per County (effective 1/1/2004) –Fairfax - $290,319 –Prince William - $290,319 –Stafford - $290,319 n Minimum Down Payment (3%) n FHA ARM n ALL of Down Payment/Closing Cost can be Gifted n No Income Limitations n DAP Program Eligible

9 FHA ARM n Maximum Interest Rate adjustment per year – 1% above the start rate n Maximum Life Time Interest Rate Adjustment – 5% above the start rate n Index – 1 Year Treasury Bill n Margin = Fixed for Life of Loan, ranges 2% % n ARM will either change to the 1% cap or the Index + the margin, whichever is less

10 FHA 1Yr. ARM vs. 30 Year Fixed P & I Monthly Savings Cumm. Annual Savings 1 Yr. Arm 30 Yr. Fixed 5.5% - $ % - $1,049 $196$2, % - $ % - $1,049 $101$3, % - $1,049 $0$3, % - $1,1537.5% - $1,049 -$104$2, % - $1,2617.5% - $1,049 -$212-$228

11 Alternative Lending n Up to 100% Financing Available n Adjustable Rate Mortgages: 2/28, 3/27 n Prepayment Penalty n Lower Qualifying FICO Scores n Unique Underwriting Necessary n Bandage Loan used to allow borrowers with problems to correct to standard underwriting guidelines