What You Should Know About Loans

Let’s demystify loans and the information that you should know. We will start with the difference between conventional loans and FHA loans. Then we will look at loan limits and finish up with what you should look out for when it comes to loans.

What is a conventional loan? What is an FHA loan? What is the difference? Conventional loans are those that are set forth by Freddie Mac and Fannie Mae and made available to various lenders such as Mission Hills Mortgage, Bank of America and many others. Their interest rates are driven by FICO scores (FICO is the acronym for Fair Isaac Corporation, a publicly-traded corporation that created the best-known and most widely used credit score model in the U.S.) and the type of property being purchased. The down payment requirement is 10% and require private mortgage insurance (PMI) on their loans unless you have a 20% down payment.

FHA is referred to as the working person’s loan. One myth about FHA loans is that they are for first time homebuyers only; however, it is actually for anyone that qualifies as long as it is for your primary residence. The loans they provide are not FICO score driven and they have a much lower down payment requirement of 3.5%. They don’t require PMI but they do require Mortgage Insurance Premium which is pretty much their version of PMI. The cost of MIP is about 1 ¾ percent of the purchase price minus the down payment. One advantage of an FHA loan is forbearance. If something happens to your family that results in death or disability FHA can step in and take your loan from the lender and help you by allowing you to miss up to 18 months of payments on your mortgage. You will still have to pay all your other bills such as property taxes and insurance, but you won’t have to worry about your mortgage.

There are different loan limits for each of these programs. When it comes to conventional loans, the limit is 417,000 in the Orange County area and they have a high balance loan limit of 625,500 which also carries a higher interest rate. The FHA loan limit is 729,500 (Orange County area.)

When looking for loans, there are some factors that you should be aware of. Interest rates are usually the first thing consumers are concerned about. The current rate for conventional loans is 4.875% and the FHA rate is 5.0% with a 30 day lock, which brings us to the next thing you should know. A 30 day lock refers to the number of days that an interest rate on a loan is valid. When the lock expires your interest rate is no longer valid. When it comes to the interest rate, there are several things that can affect the actual rate that you end up with. These are your FICO scores, type of property, and whether or not you choose to open an escrow account.

All the information presented was provided through a conversation with Dawn McConnell of Mission Hills Mortgage. If you would like more information about loans and interest rates please feel free to contact Dawn at:

Dawn McConnell
562.682.1855
dmcconnell@mhmb.com


If you have any questions related to real estate or if you would like to know more about a specific topic please let me know.

David Cuevas
Prudential California Realty
housingbydavid@verizon.net
www.housingbydavid.com