Foundations of the Mortgage Industry

Foundations of the Mortgage Industry

Understanding the foundations of the mortgage industry can be very helpful when venturing into for the first time.  Even if you have some experience with getting financed for a home, knowing and understanding these foundations can give you an upper hand when shopping for the best deal.  Let’s get started.  The fact is that 93% of homes in America are financed through either the private sector or government sector.  The breakdowns of these sectors are below.

Programs:

foundation property guidingPrivate sector:  Known as Conventional loans.  Within this sector there are conforming and non-conforming products.  Conforming are Fannie Mae (FNMA) Federal National Mortgage Association and Freddie Mac (FHLMC) Federal Home Loan Mortgage Corporation loans. Their role is to promote homeownership by buying conforming quality loans from the banks; making banks more liquid, which encourages more loans to homeowners.  Non-conforming are Jumbo, Alternative A paper, and Subprime loans.  While non-conforming loan qualifications differ from conforming, the following guidelines are for conforming loans.  These conforming loans consider what is known as the “3 C’s”; Credit, Capacity, and Collateral.

Collateral – Loan to value ratio (LTV):  Must be less than or equal to 95%.  This means the borrower must have at least 5% equity in the home.  This equity can arise through a down payment on a purchase or an opinion of value by an appraiser on a refinance.

Capacity – Debt to income ratio (DTI):  Must be less than or equal to 45%.  This means the borrower can not exceed 45% of their gross monthly income for all debts.

Credit – Credit score:  Must be greater than or equal to a credit score of 620.    

Government sector:  Known as non-conventional loans.  Within this sector you find Federal Housing administration (FHA) who insures loans, Veteran Affairs (VA) who guarantee loans, and USDA/RHS who also guarantee loans.  So who buys these loans?  The Government National Mortgage Association (GNMA) also known as Ginnie Mae does.  They are wholly owned by the USA and consider the following 3 C’s for a loan qualification.

Collateral – Loan to value ratio (LTV):  Must be less than or equal to 96.5% (VA can be 100%).  This means the borrower must have at least 3.5% equity in the home.  This equity can arise through the aforementioned ways.

Capacity – Debt to income ratio (DTI):  Must be less than or equal to 55%.  This means the borrower can not exceed 55% of their gross monthly income for all debts.

Credit – Credit score:  Must be greater than or equal to a credit score of 580.

Not sure who to call or where to start?  Contact me today for a 100% free no-obligation loan inquiry analysis.

Matt Pell,  Loan Officer
Mortgage Warehouse, LLC
(239) 672-8502 – Direct Line
(239) 344-9223 – Fax
Matt@mortgagewarehouse.com
www.facebook.com/themortgagewarehouse
Company NMLS ID – 137154
Individual NMLS ID – 1018529
Better Business Bureau Rating = A+

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Posted on April 29, 2013, in Finance and tagged , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , . Bookmark the permalink. Leave a comment.

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