Mortgage 101 in a Confusing World!

Conforming, High Balance, Non-Conforming, FHA, VA? What is the best loan these days? What type of down payment is required in today's market?

The world of mortgage can seem a bit confusing, especially these days. Most people have heard a lot of the news from the recent Housing bill to the stimulus package and now the new $700 billion dollar "Wall Street Bailout" but what does it all mean for you!

There are a few different loan types to understand. Depending on your loan amount you will fall into one of three main categories.

1. Conforming 417k or less loan amount: If your loan amount is less than $417k you have access to the widest variety of loan options at the best rates available. For most people looking to purchase a home FHA is currently one of the most popular options and currently only requires a 3% down payment. If you are putting less than 10% down or have less than 10% equity in your home for a refinance this is currently the only option for most people. If you qualify for a VA loan you may be eligible for no down payment.
FHA: 3% Down (3.5% starting January 1st 2009) For owner occupied 1st time home buyer or refinances.
VA: $0 Down on purchases for qualifying active duty personnel or personnel with previous qualifying military service, reservists, national guard and coast guard personnel with qualifying service.
Conventional: 10% down in California

2. High Balance 417k to 729k loan amount until Dec 31 2008: This was put into effect with the economic stimulus package earlier this year and extends many of the conforming options up to 729k in most high cost areas including Pasadena and most of Los Angeles as well as other high cost areas. Rates are currently about the same as conforming and offer the best available rates.
FHA: 3% Down
VA: Loans over 417k will require some down payment
Conventional: 10% Down in California

3. Non-Conforming 729k+: Loans above $729k fall into this category. Rates are higher than conforming and the high balance loans. In markets labeled declining (all of California) a minimum 20% down payment is required. There are several ways to be creative and help avoid the non-conforming rates including taking a 1st mortgage of 729k under a high balance loan and putting the difference on a 2ND, a first trust deed equity line, etc.. etc. The best option will depend on several factors and each individuals situation. While rates are higher in this category the good news is the rates in this category are showing some signs of trending back down a little.
Conventional: 20% down

A few things to remember:
-If you put less than 20% down on any loan for any loan amount (or have less than 20% equity on a refinance), mortgage insurance will be factored into the payment.
-The high balance loan option will no longer exist as of Jan 1st 09. However the conforming limit will be raised to $625k in high cost areas including most of Los Angeles.
-The above loan scenarios apply to all loan types including bank owned properties (REO's), foreclosures etc..

Hopefully this simplifies the basics of the loan types. If you have further questions or specific scenarios feel free to post them here .

Regards,