Why choose a loan with Outside Lending

Why choose a loan with our company.......

When you are ready to shop for a loan, you can work directly with a Bank or better yet with a Mortgage Broker representing many individual banks and lenders,

Direct lenders such as banks, are lending their own money, have in house programs, and make the final decision on your application.

Mortgage Brokers are intermediaries who represent many lenders, banks, and have many loan programs from which to choose.

If you have special financing needs or want to shop the market for the best deal, an experienced broker may be able to find the best loan for you.

Choosing the Best Loan Program

Loan programs come in many forms and come from many sources. Just as the loan structure, like a 30 year fixed rate mortgage, can affect your interest rate and monthly payments, the source of funding for your loan can also affect your rate and payments. The source of funding can also affect the amount of your down payment and closing costs.

If you have at least 3% of the loan amount to use as a down payment, you may consider the most common type of loan, a conventional loan. These loans consist of conforming loans, which are secured by government sponsored entities (GSE) such as Fannie Mae and Freddie Mac, and jumbo loans, which are funded by private investors for loan amounts higher than the limits set by the GSE's.

Conforming loans are funded by Fannie Mae (FNMA) and Freddie Mac (FHLMC). These companies do not lend money directly to you, but work with lenders across the country to offer mortgage loans to meet your needs. As a secondary market for mortgage loans, they purchase mortgages from lenders and package them into securities that can be sold to investors.

If you are looking for a large loan amount to purchase or refinance your home, you could consider a jumbo loan, which has a higher loan amount limit than the limits set by Fannie Mae and Freddie Mac. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.

The federal government and other state, local and private entities have developed programs to help you purchase a home with a low down payment. If you are a first time homebuyer or have low to moderate income, you may be eligible for a mortgage insured by the Department of Housing and Urban Development (HUD) through the Federal Housing Administration (FHA). While FHA does not make or buy loans, they insure FHA loans so that if you default on the loan, the lender will get reimbursed. You may be able to get an FHA loan with a low down payment of only 3% of the loan amount or less. While there are limits to the size of FHA loans, they are generous enough to handle moderately priced homes almost anywhere in the country.

If you are a veteran or qualify by military service or other entitlements, FHA mortgage insurance can also be combined with a guarantee from the Veteran's Administration. VA mortgages were created to help veterans achieve the American dream and buy their own homes. VA loans offer low to no down payments with many of the same benefits as an FHA loan.

If you have bad credit, you may not qualify for a conventional loan. In this case, you could consider a subprime loan. Like other loans, sub prime loans come in many forms based on the terms, loan amount and loan to value ratio you are looking for. In addition companies will look at your credit and give you a credit grade, which will help them determine the best loan for your situation. With less than perfect credit, you can expect to pay higher interest rates because of the higher risk associated with making a loan to someone with a poor credit history.

Fixed Rate Mortgages -

Looking for a program where your monthly payments for interest and principal never change?

The most common type of mortgage program where your monthly payments for interest and principal never change. Property taxes and homeowners insurance may increase, but generally your monthly payments will be very stable.

Fixed rate mortgages are available for 30 years, 20 years, 15 years and even 10 years. There are also "biweekly" mortgages, which shorten the loan by calling for half the monthly payment every two weeks. (Since there are 52 weeks in a year, you make 26 payments, or 13 "months" worth, every year.)

Fixed rate fully amortizing loans have two distinct features. First, the interest rate remains fixed for the life of the loan. Secondly, the payments remain level for the life of the loan and are structured to repay the loan at the end of the loan term. The most common fixed rate loans are 15 year and 30 year mortgages.

During the early amortization period, a large percentage of the monthly payment is used for paying the interest . As the loan is paid down, more of the monthly payment is applied to principal . A typical 30 year fixed rate mortgage takes 22.5 years of level payments to pay half of the original loan amount.

Conventional loan -

What are conventional loans and why would you need one?

Conventional Loans are secured by government sponsored entities or GSE's such as Fannie Mae and Freddie Mac or by private investors for loan amounts higher than the limits set by the GSE's. Conventional loans can be made to purchase or refinance homes with first and second mortgages on single family to four family homes.

In general, Fannie Mae and Freddie Mac's single family, first mortgage loan limit is $333,700 in 2004. 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, 2004.

2004 Conventional Loan Limits

One Family loans: $333,700
Two Family loans: $427,150
Three Family loans: $516,300
Four Family loans: $641,650
Note: Maximum original loan amounts are 50 percent higher for first mortgages on properties in Alaska, Hawaii, Guam and the U.S. Virgin Islands.

$150,350 (in Alaska, Hawaii, and the US Virgin Islands: $225,525)

Loans which are larger than the limits set by Fannie Mae and Freddie Mac are called jumbo loans.. Because jumbo loans are not funded by these government sponsored entities, they usually carry a higher interest rate and some additional underwriting requirements. A strategy to lower your overall interest payments if your purchase or refinance balance is above $333,700 is to use a combination of both first and second trust money, referred to as an 80/10/10, 80/15/5 or 80/20. Every situation is different, but it is one more option to consider.

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 down payments, community lending and affordable housing initiatives, construction to permanent, home improvement and reverse mortgages.

Jumbo loan -

Looking for a large loan amount to purchase or refinance your home?

A loan which is larger (more than $322,700 as of 1/1/03) than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.

FHA loans -

Need help lowering some of the costs of your home loan and you are a low to moderate income family?
FHA has maximum loan amounts, which vary from one county to another. It is critical that your loan amount, including financed closing costs, not exceed the maximum set by FHA for the county in which your property is located. There are no income limits on FHA loans.

Down Payment Gifts - FHA allows 100% of the down payment to be a gift from friends, family or other sources.

Closing Costs - Can also be financed to reduce the up front cost of buying a home.

FHA's Mortgage Insurance - Programs that help low and moderate income families become homeowners by lowering some of the costs of their mortgage loans. While this insurance is not free, you can finance the up front insurance premium at the time of purchase and add to your regular mortgage payments.

VA loans -

If you are a veteran or qualify by military service you may be eligible for a VA home.

VA Loan Questions and Answers

Question: Can I get a VA loan if I have had a bankruptcy in the last few years?

Answer: VA credit standards state that a veteran with a bankruptcy less than 3 years ago would generally not be considered a satisfactory credit risk unless: the veteran or spouse has obtained items on credit since the bankruptcy and has paid the obligations in a satisfactory manner for a continued period; and the bankruptcy was caused by circumstances beyond the control of the borrower, which would have to be verified. A bankruptcy discharged 3 to 5 years ago must be given some consideration in the underwriting of the loan. A bankruptcy discharged more than 5 years ago may be disregarded. These are the minimum standards that mortgage companies must follow when making a VA loan. In 95% of the cases, companies make the decision to approve a loan without VA's prior approval. Keep in mind that mortgage companies also have money at risk in giving you a VA loan, so they may have stricter credit standards than those mandated by VA.

Question: How big of a loan can I get? If my guaranty entitlement is $36,000, does this mean I am limited to a $36,000 loan?

Answer: There is no limit on the size of a VA guaranteed home loan, provided that the veteran is qualified for the loan from a credit and income standpoint. However, as a practical matter, companies will generally limit the maximum loan amount to 4 times the amount of the veteran's available entitlement plus any down payment. Currently, the maximum entitlement on loans above $144,000 is $50,750, which will support a no down payment loan of up to $203,000.

Question: Why do I have to pay a fee for a VA home loan? Since I paid a fee for my first loan, why is there a larger fee for my second loan?

Answer: The VA funding fee is required by law. The fee, currently 2 percent on no down payment loans, is intended to enable the veteran who obtains a VA home loan to contribute toward the cost of this benefit, and thereby reduce the cost to taxpayers. The funding fee for second time users who do not make a down payment is 3 percent. The idea of a higher fee for second time use is based on the fact that these veterans have already had a chance to use the benefit once, and also that prior users have had time to accumulate equity or save money towards a down payment. Second time users who make a down payment of at least 5 percent pay a reduced funding fee of 1.5 percent, the same as first time users making the same down payment. For a 10 percent down payment, the fee drops to 1.25 percent. The effect of the funding fee on a veteran's financial situation is minimized since the fee may be financed in the loan.

Question: May a veteran join with a non veteran who is not his or her spouse in obtaining a VA loan?

Answer: Yes, but the guaranty is based only on the veteran's portion of the loan. The guaranty cannot cover the non veteran's part of the loan. Consult mortgage companies to determine whether they would be willing to accept applications for joint loans of this type. Mortgage companies that are willing to make these types of loans will likely require a down payment to cover risk on the un guaranteed, non veteran's portion of the loan. Unlike other loans, the mortgage company must submit joint loans to VA for approval before they are made. Both incomes can be used to qualify for the loan. However, the veteran's income must be sufficient to repay at least that portion of the loan related to the veteran's interest in (portion of) the property and the non veteran's income adequate to cover the rest.

5 Steps to a VA Loan

1. Apply for a Certificate of Eligibility.
A veteran who doesn't have a certificate can obtain one easily by completing VA Form 26-1880, Request for a Certificate of Eligibility for VA Home Loan Benefits and submitting it to one of the Eligibility Centers with copies of your most recent discharge or separation papers covering active military duty since September 16, 1940, which show active duty dates and type of discharge.

2. Decide on a home the buyer wants to buy and sign a purchase agreement

3. Order an appraisal from VA. (Usually this is done by the lender.)
Most VA regional offices offer a "speed up" telephone appraisal system. Call the local VA office for details.

4. Apply to a mortgage lender for the loan.
While the appraisal is being done, the lender (mortgage company, savings and loan, bank, etc.) can be gathering credit and income information. If the lender is authorized by VA to do automatic processing, upon receipt of the VA or LAPP appraised value determination, the loan can be approved and closed without waiting for VA's review of the credit application. For loans that must first be approved by VA, the lender will send the application to the local VA office, which will notify the lender of its decision.

5.Close the loan and the buyer moves in

Subprime loans -

Have less than perfect credit? If you have bad credit, you may not qualify for a conventional loan or low down payment loans offered by FHA and VA. In this case, you may consider a subprime mortgage. Because of the higher risk associated with lending to borrowers that have a poor credit history, subprime loans typically require a larger down payment and a higher interest rate.

If you have bad credit, you may not qualify for a conventional loan or low down payment loans offered by FHA and VA. In this case, you may consider a subprime mortgage. Because of the higher risk associated with lending to borrowers that have a poor credit history, subprime loans typically require a larger down payment and a higher interest rate.

You should study the specific terms of a subprime loan that you qualify for to determine if it is a loan that will help your financial situation. Subprime loans are one way for you to get into the home you want at today's price. If you already own a home, a subprime loan can give you an opportunity to clean up your credit and ultimately refinance into a lower rate at a later time. If you have a mortgage, you can look at refinancing more than what you currently owe on the house and get cash back for the equity you already have in the home. This cash out could be used to pay off higher rate credit cards, bankruptcy, foreclosure or collections and liens. It could be a good way to clean up a troubled credit history, save money each month and start rebuilding your credit worthiness.

Whether for a purchase or refinance, subprime loans should typically be used as a short term solution, approximately 2-4 years. During that time, you can work to clean up your credit and qualify or a refinance into a lower risk, lower rate loan.

Lenders are compensated for risk in the form of interest rates. The higher the lender perceived its risk to be, the higher the rate they will charge for the privilege of borrowing their money. The lower the risk, the lower the rate. Several risk factors are taken into consideration when evaluating a borrower for a subprime mortgage, the most important being your payment and credit history.

Your debt to income level, employment history, type of property and assets are other factors that are taken into consideration when determining if you qualify for a conventional, government or subprime loan.

Factors that affect your rate -

Things you should be aware of that help you decide which program is the best home loan program for you.

Shorter loans, such as 20 year or 15 year note, can save you thousand of dollars in interest payments over the life of the loan, but your monthly payments will be higher. An adjustable rate mortgage may get you started with a lower interest rate than a fixed rate mortgage, but your payments could get higher when the interest rate changes.

A larger down payment – greater than 20% - will give you the best possible rate. Down payments of 5% or less should expect to pay a higher rate as you are starting with less equity as collateral. If you've got the cash now and want to lower your payments, you can pay points on your loan to lower your mortgage rate. It's a simple concept, really: In exchange for more money upfront, lenders are willing to lower the interest rate they charge, cutting the borrower's payments. Closing costs are fees paid by the lender, if you don’t want to pay all of the closing costs, expect a higher rate which will pay the lender additional interest over the life of the loan.

Credit quality and debt-to-income-ratio affect the terms of your loan through your FICO Score. If you have good credit and your monthly income far surpasses your monthly debt obligations, you will get approved at a lower interest rate. However, if your monthly income barely covers your minimum debt obligations, even if you have a good credit report, you will not receive the lowest available interest rate.

Low down payment -

Simply put, mortgage insurance protects the mortgage company against financial loss if a homeowner stops making mortgage payments. Mortgage companies usually require insurance on low down payment loans for protection in the event that the homeowner fails to make his or her payments.

When a homeowner fails to make the mortgage payments, a default occurs and the home goes into foreclosure. Both the homeowner and the mortgage insurer lose in a foreclosure. The homeowner loses the house and all of the money put into it. The mortgage insurer will then have to pay the mortgage company's claim on the defaulted loan.

For this reason, it is crucial that the family buying the home can really afford it, not only at the time it is purchased, but throughout the time period of the loan.

Although the cost of the mortgage insurance is paid by the home buyer, or borrower, the mortgage insurer works directly with the mortgage company. Mortgage insurance is available to commercial banks, savings & loans and mortgage bankers, all of whom offer mortgage loans to home buyers.

Remember that mortgage insurance is not the same as credit life insurance, also called mortgage life insurance. This type of policy repays an outstanding mortgage balance upon the death of the person who took out the insurance policy.