Types of Mortgages

Conventional Mortgage

A conventional mortgage refers to any mortgage loan that is not insured or guaranteed by the federal government. These loans must adhere to the guidelines set by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).  Some of the features of conventional loans are:

• Qualification:  Conventional mortgage loans require more stringent credit and income requirements than government backed loans.
• Down Payment:  A typical down payment for a conventional loan is 20%.  If the down payment amount is lower than 20% private mortgage insurance (PMI) is required.
• Credit:  With conventional mortgage loans, borrowers must often meet certain credit guidelines.  Typically, a FICO score of 620 is required to qualify.
• Income Limits:  There are no income limitations for conventional mortgage loans.  Borrowers need to show they can repay the loan.
• Debt to Income Ratios:  Debt to income ratios need to be reasonable to qualify for a conventional mortgage loan, meaning the amount you spend on monthly payments needs to be ‘reasonable’ compared to your monthly income.  Typically, your ratios need to be at 31/43% but it is possible for them to be higher.
• Loan Amount: Maximum loan amounts change yearly.  Please ask your originator for this year's loan amount. 
• Available Terms:  We offer 30, 20, 15 and 10 year programs. You may qualify for these term options to fit your personal needs.

 
FHA Loans

An FHA loan is a mortgage loan insured by the Federal Housing Administration (FHA).  Designed in the 1930’s to help promote home ownership, FHA loans make it easier for people to qualify for a mortgage.  FHA loans are very popular, especially for first-time homeowners.  With an FHA loan, a guarantee is offered to your bank.  This guarantee essentially states that if you fail to repay the mortgage, FHA will pay the bank instead.  Because of this, banks are willing to make loans that they otherwise would not be able to approve. 

Although FHA loans are not perfect, they are a great fit for many homebuyers.  The main appeal is that FHA loans are typically one of the easiest mortgage loans to qualify for.  Some of the features that make these loans popular are:

• Qualification:  FHA loans are typically easy to qualify for.
• Down Payment:  The down payment requirement for an FHA loan is as low as 3.5%.  For borrowers that can’t afford the traditional 20% down payment with other mortgage loan programs, they should consider this as an option for their scenario.
• Gift Funds:  Gift funds are allowed. 
• Assumable:  FHA loans are assumable which means if you wish to sell your home, the buyer can “take over” your mortgage. 
• Prepayment Penalty:  There isn’t one.
• Credit:  If you’ve recently had credit issues like a bankruptcy or foreclosure, you may still be able to quality for an FHA loan (two or three years after financial hardship is usually enough to quality with FHA).  Borrowers with low credit scores are more likely to get approved for an FHA loan.
• Income Limits:  FHA loans do not have income limits.  Borrowers need to show they can repay the loan; however, these loans are geared towards lower income borrowers.
• Debt to Income Ratios:  Debt to income ratios need to be reasonable to qualify for an FHA loan, meaning the amount you spend on monthly payments needs to be ‘reasonable’ compared to your monthly income.  Typically, your ratios need to be at 31/43% but it is possible for them to be higher.
• Loan Amount:  There are limits to the amount you can borrow.  Ask your mortgage originator for specific amounts.
• Available Terms: We offer 30 and 15 year programs to fit your personal needs.

USDA Rural Development Guaranteed Housing Loans

USDA Rural Development Guaranteed Housing Loans, commonly referred to as USDA loans or Rural Development loans, are insured by the US Department of Agriculture.  Similar to the FHA program, USDA uses homeowner-paid mortgage insurance premiums to help fund the program and keep it going.  Along with an upfront mortgage insurance premium, borrowers are also required to pay an ongoing monthly fee for the life of the loan.

Although USDA loans are similar to other mortgage loan types, they have one feature that sets them apart:  the option for no money down.  Borrowers can finance 100% of a home’s purchase price while getting competitive interest rates.  Often, interest rates are lower than FHA, VA and Conventional rates.  With USDA loans, you and your home must qualify for the loan program.  Your home must be located in a “rural” area, and it must be your primary residence.  “Rural” is defined as communities with a population less than 20,000.  Some of the features of a USDA loan are:

• Qualification:  USDA loans typically have simpler loan approval standards than other loan types.
• Down Payment:  With USDA loans, you can finance 100% of your home’s purchase price.  There is no down payment requirement.
• Gift Funds:  Gift funds are allowed.
• Prepayment Penalty:  There isn’t one.
• Credit:  There is no minimum score; however, most lenders require a 620 credit score. 
• Income Limits:  Income limitations for a USDA loan are based on the county you live in.  Ask your lender for specific income limits in your county.
• Debt to Income Ratios:  Debt to income ratios for a USDA loan are typically limited to 29/41%, except when the borrower has a credit score over 680, stable employment or can show the ability to repay.
• Loan Amount:  Maximum loan amounts change yearly.  Please ask your originator for this year's loan amount. 
• Available Terms: We offer 30 and 15 year programs to fit your personal needs.

VA Loans

The VA loan program was designed in 1944 to provide home financing for eligible active duty and veteran personnel and their spouses.  VA loans are made by conventional mortgage lenders and guaranteed by the Veteran’s Administration (federal government).   The single greatest benefit for qualified applicants is that they can purchase a house with no money down and essentially no out-of-pocket cash.

Although there are few downsides to a VA loan, it’s still important to visit with your lender regarding the pros and cons of this type of loan.  Some of the features of a VA Loan include:

• Qualification:  Must have a certificate of eligibility from the VA.  The process is similar to any other loan type home buying process.  There are a few other legal requirements to be eligible for a VA loan:
  • The loan must be for an eligible home purchase.
  • The homeowner must intend to occupy the home as a home within a reasonable period of time after closing the loan.
  • The applicant must be a satisfactory credit risk.
  • The income of the applicant and his or her spouse (if there is one), must be sufficient to cover payments, maintenance costs and take care of family obligations.
  • No one but the veteran and their spouse can be on the loan.
  • In addition to the certificate, a loan applicant will also need to do the usual documenting of their credit, savings and employment information that comes with most any loan. 
• Down Payment:  There is no down payment requirement for a VA Loan.  In addition, there is no private mortgage insurance (PMI) for not being below 80% loan to value.  The borrower must pay a VA funding fee that amounts to 0%-3.15% of the loan (not required for disabled veterans).  However, Veterans can get a loan for up to 103.5% financing, which takes care of the funding fee. This fee does not include any closing costs or fees the lender may have.
• Gift Funds:  Gift funds may be used with a VA loan.
• Prepayment Penalty:  There is no prepayment penalty on a VA loan.
• Credit:  Most lenders require a minimum credit score of 620 for a VA loan.  Additional credit requirements generally include: 
  • No foreclosures within the last 2 years.
  • No bankruptcy within the past 2 years.
• Income Limits:  There are no income limitations for a VA Loan.
• Debt to Income Ratios:  Debt to income ratios need to be reasonable to qualify for an FHA loan, meaning the amount you spend on monthly payments needs to be ‘reasonable’ compared to your monthly income.  Typically, your ratios need to be at 31/43% but it is possible for them to be higher.
• Loan Amount: Maximum loan amounts change yearly.  Please ask your originator for this year's loan amount.  While a VA Loan can help a person purchase a home, that’s not all that it can do.  Here are some additional examples of what a VA Loan can be used for:
  • To buy a home or a residential condominium.
  • To build a new home.
  • To renovate an existing home using a cash-out refinance.
  • To refinance an existing home loan to take advantage of a better rate.
  • To purchase a manufactured home that may or may not have a lot included in the sale.
  • To use the Energy Efficient Mortgage option to install energy efficient improvements on a new home purchase or to a currently owned home during a refinance.
  • It can be used to refinance a current VA Loan in order to get a better rate.
• VA Certificate:  Your certificate of entitlement can only be “in play” for one house at a time.  For example, if you’ve used your certificate to purchase a house with a VA loan, you must sell that house and pay off the loan before your certificate is “restored” and you can use it again for a new home purchase.
• Available Terms: We offer 30-year program.

In-House Mortgages

An In-house mortgage refers to any mortgage that is not sold on the secondary market and is held “In-house” by Park State Bank for servicing.  Park State Bank offers Purchases and Refinances on Primary, Vacation or Investment Homes.  Some of the features of In-House loans are:

• Qualification:    All in-house mortgages are underwritten internally by a Park State Bank underwriter
• Down Payment:  Down payments are typically required.
• Credit:  As with all mortgage loans, borrowers must often meet certain credit guidelines.  Typically, a credit score of 640 or above is required to qualify.
• Income Limits:  There are no income limitations for In-House mortgage loans.  Borrowers need to show they can repay the loan.
• Debt to Income Ratios: Debt to income ratios need to be reasonable to qualify for an In-House mortgage loan, meaning the amount you spend on monthly payments needs to be ‘reasonable’ compared to your monthly income. Borrowers generally should not expend over 36% of their gross monthly income for primary housing expenses (including principal, interest, taxes, insurance and HOA assessments).
• Loan Amount:  Maximum loan amount is determined on case-by-case basis based on individual qualifying.
• Terms:   We offer a variety of fixed rate terms as well as Adjustable-Rate Mortgages.  Please call any of our Mortgage Loan Originators for additional details.

Construction Loans

Construction loans are used to construct or remodel structures.  Construction loans can be used for 1-4 residential dwellings (houses, cabins) or other types of building such as a garage.  Some of the features of Construction Loans are:

• License Qualifications:  Contractor must be a licensed Contractor or if the borrower is the Contractor (SELF-BUILT), these additional requirements must be met:
  • SELF-BUILD - Additional Requirements
    • Applicant does not have a license or a documented work history in the field
    • Must carry both the liability and homeowners' insurance with builder's risk loss coverage endorsement
    • Maximum LTV 70%
      • Limited to 65% LTV with loan amounts over $1.5 million
    • Only hard dollar costs will be funded, no intangible costs
• Down Payment:    20% down payments are required on construction loans.  Value is based on:
  • Remodel and Previously Owned Land
    • Value is based on subject completion appraised value
    • Cash-out is allowed with a 0.25% rate increase and at least 6 months seasoning met
  • Remodel of New Acquisition
    • Value is based on the lesser of the lot cost plus cost to construct or as completed appraised value
    • Cash-out is not allowed
  • New Acquisition
    • Value is based on the lesser of the lot cost plus cost to construct or as completed appraised value
    • Cash-out is not allowed
• Cost over-runs: Reserves are based on the remaining cost to construct after initial deposits and earnest money   
  • Option 1: Include 5% cost overruns into the sworn construction statement AND document 5% reserves
  • Option 2: Document 10% reserves
  • Option 3: Include 10% cost overruns into the sworn construction statement  
• Credit:  With Construction loans, borrowers must often meet certain credit guidelines.  Typically, a credit score of 660 or above is required to qualify
• Income Limits:  There are no income limitations for Construction loans.  Borrowers need to show they can repay the loan
• Debt to Income Ratios:  Maximum 45% of your monthly income. Total monthly payments would include your house payment, taxes and insurance, credit card payments, car payments, HOA assessments etc.
• Loan Amount:   Maximum loan amount is determined on case-by-case basis based on individual qualifying
• Terms:   We offer a One-Time Close Construction loan with a fixed or adjustable-rate option 

For all loans:  It is best to keep your total monthly payments including your housing payments below 45% of your monthly income. Total monthly payments would include your house payment, taxes and insurance, credit card payments, car payments, HOA assessments etc.