Many prospective clients have asked me why is financing so difficult and what can I do to purchase property?
What has happened is clearly the market has heightened up with regards to the percentage of loan to value. Years ago people could purchase property with little or no money down and with a teaser rate for the first few years. Many of these loans are now in default and it is predicted that more are to follow.
There are programs available but it is important to know exactly what you should be looking for, with this I mean do you purchase a property with a Conventional loan or with a Jumbo? Unless you have a substantial amount of cash at least 10% -25% of the value of property the best option would be a conventional loan, it must be under $ 417,000 for a single family. This works very nicely with income property as you could purchase a Duplex, Triplex or a Fourplex and it may fall under this category.
What are Conventional and Jumbo Loans?
Conventional loans are secured by government sponsored entities or GSES you may have heard of them as Fannie Mae and Freddie Mac. Conventional loans can be made to purchase or refinance homes with first and second mortgages on single family to four family homes.
For the most part, Fannie Mae and Freddie Mac's single family, first mortgage loan limit is $ 417,000 in 2006. This limit is reviewed annually and, if needed, changed to reflect changes in the national average price for single family homes. The current loan limit applies to all conventional mortgages delivered after January 1, 2006. There is talk that these level will increase in 2008.
2006 Conventional Loan Limits
o One-family loans: $ 417,000
o Two-family loans: $ 533,850
o Three-family loans: $ 645,300
o Four-family loans: $ 801,950
o Note: Maximum original loan amounts are 50 percent higher for first mortgages on properties in Alaska, Hawaii, Guam and the US Virgin Islands.
o $ 208,500 (in Alaska, Hawaii, and the US Virgin Islands: $ 312,750)
Property loans which are larger than the limits set by Fannie Mae and Freddie Mac are called jumbo loans. Jumbo loans are not funded by these government sponsored programs, they carry a much higher interest rate and usually have additional editorial requirements. A great way to lower your overall interest payments if your purchase or refinance balance is above $ 417,000 is to use a combination of both first and second trust money, called an 80/10/10, 80/15/5 or 80/20. Your loan person will be familiar with these terms.
In addition to common loan structures such as fixed rate, adjustable rate and balloon loans, Fannie Mae and Freddie Mac also have loan programs for low to no payments, community lending and affordable housing initiatives, construction to permanent, home improvement and reverse mortgages.