Rules for FHA and Conventional Loans Could Save Your Money

The USA administration recently announced a reduction in mortgage insurance premiums for FHA loans of fifty basis points or half a percent. According to the USA administration, this will save more than 2 million home owners and an average of 900 dollars every year. A different program expands the 3 percent down payment option for conventional loans.This was initially offered to first time home buyers and also it makes the whole loan program more affordable with lower incomes as well.

Lower Mortgage Insurance Premiums
Mortgage insurance is the need for all FHA loans not for SBA loan. They save the lender in case a client should default. However, they also benefit the owner of the home by enabling them access to a mortgage with a lower down payment, which can be as small as 3.5 percent. Do not confuse this with private mortgage insurance which is applicable only to conventional loans. Conventional loans need a 5 percent down payment. PMI can be removed once loan to value or LTV touches 80%. Unlike PMI, MIP stays for the life of the loan.

What Does This Mean in Practical Term?
For an example, on an FHA loan, if you do the minimum down payment of 3.5 percent, your MIP would be 1.35 percent of your mortgage amount under the previous policy. So if you have a $100,000 mortgage, you would pay $1,350 annually. With the new announced 50 basis point reduction, that rate drops to .85 percent. So with the same digit of a loan amount , you are paying $850 for mortgage insurance, thus saving $500 every year. The reduced MIP results in an increase in a debtor's buying power. The less money a client needs to pay for MIP equals the more they can qualify for from a principal and rate of interest standpoint.

From a refinance view, clients with DTI or debt-to-income ratios on the higher side may now be possible to qualify because the fees joined with MIP have gone down.

3 Percent Down on Conventional Loans

You don't need to pay a high amount of down payment like SBA 504 loans. Before time it was 3% down payment for first time home buyers but now the program has expanded beyond first-time home buyers to also join debtors with moderate and lower incomes. This 30 years fixed loan is a profitable and affordable option than a traditional conventional loan which requires a 5 percent down payment.

Home buyers must fall within certain income limits to be eligible, as well as this option needs a higher credit score than FHA, but this could be a good deal for someone looking for an affordable mortgage. This way also allows home owners to have their PMI removed once they have 20 percent equity in your home. There is also a nifty little trick to save on PMI. It stems from the fact that the LTV or loan to value ratio, a comparison of your loan amount with how much equity you have developed in your home, is calculated differently on a refinance than it is on a purchase.

On a purchase, your LTV is your loan amount divided by the lower of the buying price or the home value. In a refinance position, the LTV is always calculated by dividing the loan amount into the home value. Many loan options are available in the market like SBA 7a, hard money, and much more but you can take advantages of this option for both purchase and rate of interest refinancing.

What Do You Know About Commercial Real Estate Loans ?

A commercial mortgage or a real estate loan is one type of financing received from a lender to acquire. Refinancing or redeveloping a commercial or a trade asset. Lenders, banks , government bodies, insurance companies, mortgage brokers correspondent lenders all offer commercial real estate loans in the USA. On the other side, the small business administration offers a 504 loan program for commercial real estate through SBA bank loan broker. It also works as small business start up loans. Basically, commercial real estate loans are considered to be mortgage loans covered by liens on commercial, rather than residential, asset.

Although an individual can get a real estate loan for commercial purpose, it is worth mentioning that most of the time these types of debt are awarded to business entities like corporates, LLC',s trusts or funds. In order to get a small business start-up loan, the corporate or individual must have a strong or positive financial history. If no financial history is present, the lender may need the owners of the entity to guarantee the loan find a guarantor for the loan. This is the very important in the case of default. A lending company must be certain that whatever loan they offer can be recovered. A lender may not take a guarantor and instead hold the asset in case of default, called a non-recourse loan.

Commercial loans have an atypical range of time. It is from 5 years to 20 years and the amortisation time is usually longer than the term, but the rate of lender charges are depend upon the length of the debited amount and amortisation time. Generally, the longer the loan repay schedule, the higher the interest rate. The rate of interest on commercial real estate loans are typically higher than on residential debts and have more fees including appraisal, legal, loan origination, survey fees and fees for a loan application.

LTV Ratio

Loan to value of LTV ratios is an option that measures the value of a loan against the value if the asset. The value is calculated by the lending company by making division the amount of the loan by the lesser of the asset's appraised value or buying price. Lower LTV's typically get qualify for more positive financing rates than higher LTV's this is because they have more stake in the asset, which means the lender keeps on lesser risk.

Major Terms

Amortisation is the distribution of money into multiple money flow instalments, according to the determination by an amortisation schedule. Unlike other repayment processes, every repayment instalment consists of both principal and interest. One thing a borrower should remember that the loan amount of a commercial mortgage is generally determined on LTV and DSCR. The structure of the loan can be as first liens or, floating rate. Generally, fixed rate mortgages are priced based on a spread to swaps, with the swap spread matched to the term of the debt.  Market interest rates and underwriting factors will affect the rate of interest quotes.

Commercial real estate loan brokers typically have higher interest rates, longer terms and need much more collateral on the part of the debtor than residential loans. Most lending companies need a guarantor and accept the creditworthiness of the entity or individual.