2021 Mortgage Resource Guide

Buying a home can be a very complex endeavor. It’s good to have at least a working knowledge of the process, the terms, and the government agencies involved in the home buying process. 

We discussed some mortgage basics with Williamsport mortgage broker D. Shane Whitteker from Principle Home Mortgage.  

What is the FHA? 
 
An FHA loan is specifically created for first-time home buyers and is insured by the US Federal Housing Administration. It allows borrowers to finance residential properties with down payments and has been in effect since 1934. It comes with looser financial requirements than other types of loans that are available through banks and financial institutions. The FHA loan was originally created to help stimulate the housing industry in the United States. 
 

What does the FHA do? 

An FHA loan allows borrowers to obtain mortgage insurance on loans from lenders that are FHA-approved throughout the U.S. This type of loan provides mortgages for single-family homes, residential care facilities, hospitals, and multi-family properties. The insurance is designed to cover the lender and protect the lender if the borrower fails to make payments and defaults on the loan. The loan requires lower down payments and approves applicants with lower credit scores compared to conventional home loans.  
 

What is an FHA loan and how does it work? 

FHA loans allow buyers with lower credit scores to obtain a home loan and put less money down to secure the loan. It's easier to qualify for this type of loan compared to a conventional loan since they're insured by the Federal Housing Administration. This government-backed mortgage is popular for first-time buyers and makes it easier for them to become homeowners. It requires a minimum down payment of 3.5 percent of the amount of money that is borrowed for the residential property that is purchased.  

Whitteker says the FHA insures the loan, making it a much safer bet for lending institutions.  

“The FHA sets guidelines for lenders to follow and offers the lender insurance if the lender followed FHA’s guidance while underwriting and issuing the mortgage,” Whitteker says. “This allows the lender to offer a much higher loan to value which results in a much lower required down payment. “ 

Who can qualify for an FHA loan? 

Applicants qualify for an FHA loan when they have a FICO score of 580 or higher. Applicants are required to have verifiable employment for at least two years. They're required to provide the lender with pay stubs, bank statements, and federal tax returns. The loan must be used for the borrower's primary residence and can not be used for rental properties.  

Beyond credit score requirements, Whitteker says the qualifications are simple. 

“All U.S. citizens and some visa holders can qualify as long as they are not excluded from the program,” Whitteker says. “If you are delinquent on any federal debts you most likely would need to pay those debts off to qualify. 
 

What is the Consumer Financial Protection Bureau? 

The Consumer Financial Protection Bureau offers protection to consumers and enforces federal consumer financial laws. They review consumer complaints, enhance financial education, review financial markets to determine if there are any risks present to consumers, root out abusive or unfair acts by creating rules, and enforcing the law. The bureau has returned billions of dollars to consumers due to companies that have violated the law. 
 

What role does the Consumer Financial Protection Bureau play in mortgages? 

The Consumer Financial Protection Bureau ensures lenders, banks, and financial institutions treat borrowers fairly. It works to educate consumers to help them avoid costly surprises.  

What is the USDA? 

The United States Department of Agriculture consists of 29 offices and agencies that implement policies and programs. The federal agency originated in 1962 and provides financial assistance for residential properties built in rural areas. 
 

What does the USDA do with regard to mortgages? 

In regard to mortgages, the USDA guarantees USDA backed mortgages to ensure the borrower obtains lower interest rates. Even without a down payment, the consumer must have the option of a lower mortgage interest rate. However, borrowers who choose to not pay a down payment will be required to pay a mortgage insurance premium. 

How does a USDA loan work? 

With a USDA loan, down payments are not required to obtain the loan for homebuyers in rural areas. This type of loan is created for buyers that do not have high incomes and are unable to obtain a traditional mortgage.  

The three USDA home loan programs that are available include loan guarantees, direct loans, and home improvement loans and grants. 
 

Who can qualify for a USDA loan? 

Qualifying for a USDA loan is a straightforward process, although there are a few guidelines you’ll have to meet.  

“In general all U.S. citizens and some visa holders can qualify,” Whitteker says.  “The applicant must live in the home as their primary residence to qualify.  There are a number of other guidelines involved to qualify. “   

What is a HUD home? What is HUD? 

HUD homes are foreclosed residential properties that were initially purchased with an FHA loan. Homes turn into HUD homes when the homeowner fails to keep up with the mortgage payment and ends up defaulting on their loan. 

“A HUD home is a home that has foreclosed that was financed through the FHA program,” Whitteker explains.  “HUD stands for Housing and Urban Development. FHA is part of HUD.”  

What is the VA? 

The VA is a branch of the federal government that provides healthcare services, benefits programs, and access to different cemeteries to military veterans.  

What does the VA do in regard to mortgages? 

In regard to mortgages, the VA allows eligible veterans to obtain a VA loan. This type of home loan doesn't require a down payment and allows veterans to obtain lower mortgage interest rates.  

How does a VA loan work? 

VA loans are accessible to eligible military veterans and don't require a down payment. They also don't require perfect credit or low debt-to-income (DTI) ratios. They come with fewer costs compared to other types of home loans.  

Who can qualify for a VA loan? 

Eligible military veterans who have completed at least 90 consecutive days in the military qualify for VA loans. Veterans are also eligible if they've completed six years of service in the reserves or national guard. Those who have had a military spouse die in the line of duty can also qualify for this type of loan. 

Who are Fannie Mae and Freddie Mac? 

“Fannie Mae is Federal National Mortgage Association, and Freddie Mac is The Federal Home Loan Mortgage Corporation,” Whitteker explains. “Fannie and Freddie are public government sponsored enterprises (GSE). These companies are privately owned but work closely with the government to keep housing finance available to the public. These companies also set guidelines for conventional mortgages.” 
 

What are credit bureaus? What do they do in the mortgage process? 

The credit bureaus are responsible for collecting and researching the credit information of individuals and selling the data to collectors. Credit bureaus provide credit scores to lenders, which allows banks and financial institutions to decide if they want to loan money to an individual.  

Who is the FDIC? What do they do in the mortgage process? 

The Federal Deposit Insurance Corporation provides deposit insurance to different depositors and was created by Congress. As an independent agency, they protect bank deposits and help financial institutions provide affordable mortgage programs.  
 

Are there any resources I can turn to help repair my credit? 

Whitteker recommends contacting your local mortgage broker to learn more. 

“There are resources out there but you really should talk to a mortgage broker before deciding on an agency to help repair your credit,” Whitteker says.  

How is a local mortgage broker a valuable resource? 

A local mortgage broker is useful because they can act as your expert between you and potential lenders to help you to find the best home loan to obtain. They'll compare different mortgage lenders and can help you to find the best interest rates. Many mortgage brokers work with multiple lenders to ensure they can save you time and energy. They can also help you to close on the home a lot faster rather than if you were to work with the bank or lender. This can make the home buying process smoother and allow you to avoid potential issues by working with an expert. 

To learn more about the mortgage process, contact the Williamsport mortgage experts at Principle Home Mortgage by calling them at (814) 308-0959.