The mortgage process can be intimidating. The mortgage world uses an alphabet soup of acronyms – FTHB, USDA, FHA, FNMA, FMCC, FHLB, LPHF, LTV, FICO, DTI, MI.
Let’s break this down and see how a FTHB can determine if homebuyers can use FHA, USDA or FHLB, and whether their FICO and DTI will allow them to qualify for the home they want to purchase.
FTHB, or First Time Home Buyer, refers to an individual who has not owned a home in the past three years.
FHLB, or Federal Home Loan Bank, offers the Homeownership Set Aside Program for First Time Homebuyers. This program allows for a $7,500 forgivable loan – with a $500 nonprofit packaging fee to the La Plata Homes Fund, or LPHF.
The loan is a second that is forgiven at one-sixtieth per month and thus is retired at the end of five years. There are income maximums for this program and completion of homebuyer education is mandatory. While the funds can be used for down payment or closing costs, it does require the buyer to have a 5 percent down payment.
USDA, or The United States Department of Agriculture’s rural housing mortgage program, allows for the purchase of a home with no down payment. Fortunately, “rural” housing is a very broad term in this context and housing in La Plata, Archuleta and Montezuma counties is considered “rural.”
USDA does impose a maximum income determined by family size and county. The type of property is limited – no manufactured homes, no wells and limitations on condominiums. There is an up-front mortgage guarantee of 2 percent that can be financed and a monthly mortgage guarantee fee of 0.40 percent that is added to the monthly mortgage payment.
FHA, or Federal Housing Administration mortgages, require 3.5 percent down and, like the USDA, also require an up-front mortgage guarantee of 1.75 percent that can be financed and a monthly mortgage guarantee fee of 1.35 percent that is added to the monthly mortgage payment. The FHA does not have income limitations and allows for a non-occupant co-borrower. There may be property limitations.
Fannie Mae (FNMA) and Freddie Mac (FMCC) are conventional mortgages that offer the widest variety of acceptable properties and programs.
The minimum down payment for both is 5 percent. The maximum DTI (debt-to-income ratio) is generally 43 percent. A down payment of less than 20 percent will necessitate MI – mortgage insurance. The cost of the mortgage insurance will be a factor of the LTV (Loan to Value), the FICO (credit score) and the DTI. The better your credit and the higher the down payment, the lower the cost of the mortgage insurance.
Each of the programs offers opportunities and challenges. Your mortgage lender can help you sort through the alphabet soup and get you into a home of your own.
Julie Cooley is a vice president and mortgage loan originator (NMLS 580315) at First National Bank of Durango. She can be reached at jcooley@fnbdurango.com.
