Basic Mortgage Questions

FHA Loans

What is an FHA Loan?
Many people think that they have to get an FHA Loan through the Federal Housing Administration. However, the Federal Housing Administration does not provide FHA loans; they simply guarantee or insure the loans. FHA loans are often referred to as government-insured loans or government loans. To get an FHA loan, you apply through an approved lender like Countrywide.

FHA loans have features that can make them easier for first-time home buyers to qualify such as lower down payments and flexible lending guidelines.

More specific features include;

Low down payment (usually 3% of the FHA appraisal value or the purchase price, whichever is lower)
No maximum income/earning limitations
Fixed rate and ARM loans available
Insurance from the federal government replaces private mortgage insurance
Maximum loan amounts vary by county — ask for information on your county
Who can qualify for an FHA Loan?
An FHA Loan could be the ideal solution for some home buyers, especially if one or more of the following apply:

First-time home buyer
Not a lot of money to put down on a house
Low monthly payments are important
Non traditional employment or credit history
There are also eligibility requirements for the property. Other restrictions apply. Properties that are eligible for an FHA loan include single-family homes, 2-4 unit properties, condominiums, and manufactured homes.

**You can not acquire 2 FHA Primary Residence Loans within the same state** 

VA Loans

What is a VA Loan?

A VA loan is guaranteed by the Department of Veterans Affairs (VA). VA loans are offered through an approved lender such as Countrywide. These loans have features that can make them easier for qualified veterans to obtain. These features include:

Up to $799,000 for veterans with full entitlement
Fixed rate with 10–30 year loan terms
More flexible income, employment and savings requirements.
Who can qualify for a VA Loan?
Any veteran who served in the active military, naval or air service, who was discharged or released from active duty under conditions other than dishonorable. Active service members may also be eligible.

There are also eligibility requirements for the property. Other restrictions apply. Properties that are eligible for a VA loan include single-family homes, VA-approved condos, PUDs (Planned Unit Developments) or 2-4 unit properties.

Reverse Mortgages

What is a reverse mortgage?
A reverse mortgage enables homeowners aged 62 and over to convert part of their home equity into tax-free income without having to sell the home, give up title, or take on a new monthly mortgage payment. The reverse mortgage is aptly named because the payment stream is reversed. Instead of making monthly payments to Countrywide, as with a regular mortgage, Countrywide makes payments to the homeowner.

Benefits of a Reverse Mortgage

No monthly payments
No income or health qualifications
Homeowners may use the cash for any purpose
Neither the homeowners nor their heirs will owe more than the home’s appraised market value at the maturity of the loan
The loan is not due until the last homeowner sells or permanently leaves the home
Homeowners can receive the cash in a way that suits their financial situation – lump sum, line or credit, monthly payments, or a combination of any of these
How do I qualify?
Contact your Countrywide loan officer for details. There are no income or health requirements, and only minimal credit requirements to qualify. All homeowners must be at least age 62.

How much can I qualify for?
The amount of the reverse mortgage benefit for which a homeowner qualifies is determined by three factors:

Homeowner age (all homeowners must be at least age 62)
Current appraised value of the home
Current interest rate
For more information, contact your Countrywide home loan consultant. Reverse mortgages from Countrywide are funded and administered by Countrywide Bank, FSB.

Energy Efficient Mortgage (EEM) Program

What is an Energy Efficient Mortgage (EEM)?
An Energy Efficient Mortgage seeks to help achieve national energy-efficiency goals and provide better housing for people who might not otherwise be able to afford it. The savings on monthly utility bills is taken into consideration as a credit toward borrower income when qualifying for a mortgage, on an energy-efficient certified home.

An Energy Efficient Mortgage can be used to purchase a home that has energy-efficient features, or it can be used to refinance a home to incorporate energy-efficient technology. Examples of improvements that can be made under an EEM loan include:

Plug and patch holes
Attic insulation and ventilation
Wall and floor insulation
Weather-stripping and caulking gaps/cracks
Replacing old furnaces, air conditioning systems or water heaters with efficient models
Double-pane windows and solar sun screens
Renovation Loans

FHA 203 (k) - Rehabilitation Loan

What is an FHA 203(k) Loan?
An FHA 203(k) Rehabilitation Loan covers the purchase or refinance of the property but also covers the rehabilitation or improvement of the property. FHA 203(k) loans are insured by the Federal Housing Administration and offered through approved lenders such as Countrywide. Features include:

One loan that combines the cost of buying a home and the cost of making repairs
Qualify with as little as a 3% investment
Loan amount is based on the “as-improved” value
Purchase or Refinance
Streamline (203[k][S]) process available for rehab budgets of $35,000 or less
Who can qualify for an FHA 203(k) Loan?
Qualifying for a mortgage can be hard to do if you do not have a lot of money for a down payment or have non-traditional credit sources. With fewer restrictions, an FHA 203(k) Loan could be the ideal solution, especially if one or more of the following apply to you:

First-time home buyer
Not a lot of money to put down on a house
Low monthly payments are important
Sale price of new home falls within FHA loan limits
Non traditional employment or credit history
There are also eligibility requirements for the property. Other restrictions apply. Properties that are eligible for an FHA loan include: single-family homes, 2-4 unit properties, condominiums, manufactured homes and REO properties.

Government Loans

FHA Loans

What is an FHA Loan?
Many people think that they have to get an FHA Loan through the Federal Housing Administration. However, the Federal Housing Administration does not provide FHA loans; they simply guarantee or insure the loans. FHA loans are often referred to as government-insured loans or government loans. To get an FHA loan, you apply through an approved lender like Countrywide.

FHA loans have features that can make them easier for first-time home buyers to qualify such as lower down payments and flexible lending guidelines.

More specific features include;

Low down payment (usually 3% of the FHA appraisal value or the purchase price, whichever is lower)
No maximum income/earning limitations
Fixed rate and ARM loans available
Insurance from the federal government replaces private mortgage insurance
Maximum loan amounts vary by county — ask for information on your county
Who can qualify for an FHA Loan?
An FHA Loan could be the ideal solution for some home buyers, especially if one or more of the following apply:

First-time home buyer
Not a lot of money to put down on a house
Low monthly payments are important
Non traditional employment or credit history
There are also eligibility requirements for the property. Other restrictions apply. Properties that are eligible for an FHA loan include single-family homes, 2-4 unit properties, condominiums, and manufactured homes.

FHA 203(k) - Rehabilitation Loan*

What is an FHA 203(k) Loan?
An FHA 203(k) Rehabilitation Loan covers the purchase or refinance of the property but also covers the rehabilitation or improvement of the property. FHA 203(k) loans are insured by the Federal Housing Administration and offered through approved lenders such as Countrywide. Features include:

One loan that combines the cost of buying a home and the cost of making repairs
Qualify with as little as a 3% investment
Loan amount is based on the “as-improved” value
Purchase or Refinance
Streamline (203[k][S]) process available for rehab budgets of $35,000 or less
Who can qualify for an FHA 203(k) Loan?
Qualifying for a mortgage can be hard to do if you do not have a lot of money for a down payment or have non-traditional credit sources. With fewer restrictions, an FHA 203(k) Loan could be the ideal solution, especially if one or more of the following apply to you:

First-time home buyer
Not a lot of money to put down on a house
Low monthly payments are important
Sale price of new home falls within FHA loan limits
Non traditional employment or credit history
There are also eligibility requirements for the property. Other restrictions apply. Properties that are eligible for an FHA loan include single-family homes, 2-4 unit properties, condominiums, manufactured homes and REO properties.

VA Loans

What is a VA Loan?

A VA loan is guaranteed by the Department of Veterans Affairs (VA). VA loans are offered through an approved lender such as Countrywide. These loans have features that can make them easier for qualified veterans to obtain. These features include:

Up to $799,000 for veterans with full entitlement
Fixed rate with 10–30 year loan terms
More flexible income, employment and savings requirements.
Who can qualify for a VA Loan?
Any veteran who served in the active military, naval or air service, who was discharged or released from active duty under conditions other than dishonorable. Active service members may also be eligible.

There are also eligibility requirements for the property. Other restrictions apply. Properties that are eligible for a VA loan include single-family homes, VA-approved condos, PUDs (Planned Unit Developments) or 2-4 unit properties.


Home | Start | Learn | About | Tools Equal Housing Lender. © 2008 Countrywide Bank, FSB, Countrywide Home Loans Division. Member FDIC. Trade/service marks are the property of Countrywide Financial Corporation, Countrywide Bank, FSB, or their respective affiliates and/or subsidiaries. Some products may not be available in all states. This is not a commitment to lend. Restrictions apply. All rights reserved. privacy and security

Links provided on this site do not constitute an endorsement, sponsorship or affiliation with the linked site and its content. Countrywide Financial Corporation and/or its subsidiaries is not responsible for the contents of, or products or services offered on, third party Web sites and provides links to such web sites solely for your convenience. *Source: As ranked for 2007 by Inside Mortgage Finance (Jan. 25, 2008), © 2008. ble-rate. Balloons. Negative amortization.

Wait -- we see your cursor drifting towards the big red X button! Mortgages are probably the most crucial piece to buying, selling, or just plain owning a home. And, honestly, they are not as hard to understand as you might think. You can benefit from the experience of others who have mortgages (which is just about everybody you know), and with a little homework, you can make the best financial decisions


1.) What is a mortgage?
It’s pretty simple: A mortgage loan is a loan, with your house and land used as security; if you don’t pay back the loan, the lender forecloses on your home. The loan is secured by a lien (the "mortgage") against the property (your house and land). The lender doesn't own the house, you do. They just have the lien with your house as their collateral (i.e. the security).

When you are looking for a first mortgage, there are two things to think about: what you can actually afford, and what you can borrow. Why are they different? Because the lender is not going to look at how much you spend in a month on gourmet wine or movies, or how comfortable you'll be with a big payment. They may be willing to loan you much more than you think you can spend on your mortgage. Only you know how much flexibility or not that your lifestyle has, which determines how much you can afford in a home.

A lender looks at your income (and income potential) vs. your debt, as well as your savings and credit history. Then they determine how big a risk you'd be for the lender to take on. They're also going to look at the value of the house you want to buy, and the interest rate of the loan you'll be getting. And then they arrive at a loan amount their firm can live with. In a perfect world it will match (or exceed) what you need to bridge the gap between your down payment and the price of the house you want.



2.) Why are there so many kinds of mortgages! How will I ever figure it out?
When it comes to looking at mortgage types, ask yourself one giant question: What is your goal? Will you be in this new home when the grand-kids come to play, or is this a starter home that you'll trade up in the next five years? The answer to that question will help narrow your mortgage choices.



3.) Why does my length of time in the house matter?
It matters for two reasons: It will determine which type of loan is better for you, and it will dictate whether you look hardest at interest rates or at points.

If you are going to stay in your house and plan to pay off your mortgage over its lifetime, you can get a fixed rate loan where the payments will not change. (Of course, taxes and insurance are usually included in this type of loan and they might change.) The interest is a little higher than with an Adjustable Rate Mortgage but you have the security of knowing what your loan payments will be.

But if you know you won't be in the house long, you can get a lower interest rate on an ARM. If rates take a big jump in a few years, it won't matter because you're planning on selling then anyway. You'll also have the option of a hybrid ARM that is fixed for, say, five years, and then adjusts annually.

The lender may charge points, and required third parties charge for their services, which increases the cost of the loan. If you sell your home in a few years and have paid points to get a better interest rate, you may not recoup the cost of those fees. And your equity in the house will be minimal, but you are betting the home will appreciate enough to cover the fees, or that the money you save in interest will balance out the additional cost of the loan. (If you stay in the house longer than you expect, you take the risk that you can't afford the higher payments as the interest rates adjust, or you risk not being able to refinance.)

There's no free lunch (or free loan): You can choose between higher rates with lower points, or lower rates with higher points. The key is to compare different types of loans to see what works for your needs.

Tip: In general, you should never pay more than 1 to 1-1/2 points to a lender, depending on the loan. (In certain circumstances, you might pay 2 percent, but only if there is a good reason; e.g., bad credit, complex loan, or you are buying a great interest rate.) You should discuss with an independent mortgage professional the effect discount point have on your rate. If your holding time is less than five years, you might consider "negative points" or receiving a credit from yield spread premium for your closing costs.



4.) Where can I find today’s rates?
Lenders and your local bank will have the latest rates for each type of loan. Shop around for rates in your city to see who is offering the best deal locally. Looking at the advertised rates will not tell you which loan you qualify for and often times the lowest rates ("teaser rates") can be misleading, so you should investigate several lenders.



5.) Why are some rates shown as a percentage and as an APR too?
The Annual Percentage Rate is what you will actually end up paying in addition to the principal. It wraps up the interest, points and fees in an effective annual rate. (When a lender quotes you a rate, it will be for interest only, so ask to see the APR.) As above, when you are using the APR to compare loans, make sure you are comparing apples to apples. You need the same loan from different lenders to make the comparison work.

Tip: Compare the APR on two identical loans and choose the one with the lesser rate. Does this seem confusing? Take a look at the resources at the bottom of this article or seek independent mortgage advice.


6.) What is amortization?
It is a true measure of what you are paying per year against your loan. A loan has a life -- whether it's 15, 30, or even 50 years. You pay in installments, and the principal decreases (except in the case of interest-only loans or negative amortization) until the loan is paid off by the end of the term. The payments are evenly spread over the life of the loan, with the interest payments the majority of the payment at the beginning, and then principal paid off toward the end of the term. Pay attention to the amortization schedule, which shows the payments for the life of the loan including interest.

Tip: Pay half your house payment every two weeks instead of one monthly payment. This results in 26 payments per year, one more payment annually than if you just paid monthly. The re-amortized loan will eventually result in more of the payment paid on principal and less on interest. The extra payments go to pay down the principal on the loan.



7.) I keep hearing that ARM rates are tied to an index. What's that?
Fasten your seat belt. This can get complicated.

An ARM loan's interest rate is determined by an index, which adjusts periodically, plus a pre-set margin (e.g., Prime plus 2). In general, you want to understand this because some indexes change faster than others. The more change, the more fluctuation in the ARM. Most buyers want to choose an ARM based on a stable index (especially if you suspect the economy is less than booming), or at least consider it along with all the other aspects of the loan. Ask your lender to fill you in on how the index works for your loan.

Some popular indexes include:

T-Bills, the federal government's treasury bill index; the most commonly used
LIBOR (London Interbank Offered Rate Index), based on international rates
COFI (11th District Cost of Funds Index), based on a moving average of rates
Prime Lending Rate

8.) What else should I watch out for?
Prepayment penalties. Think it's a good thing to pay off a loan? Well, it might be, but certain lenders charge a penalty if you do. Penalties apply for a specific period of time, usually 1, 2, or 3 years after the loan is originated. How much is the penalty? Could be six months of interest or 2 percent of the principal remaining on the loan, but it varies.

You might think that it’s stupid to get a loan with a prepayment penalty, but some lenders offer very low (and therefore tempting) interest rates in exchange. Also, some borrowers agree to loans with penalties if they have bad credit and it's the only way they can get the loan. Mostly, a prepayment penalty is a financial decision. There are situations where accepting a prepayment penalty on a loan can save you thousands of dollars in interest.



9.) What's a traditional vs. non-traditional loan?
Lenders are creative when it comes to loans to enable people to own a home. That sounds very American, but sometimes the loans are issued regardless of a buyer's ability to pay. Recently, when the housing market was hot, non-traditional loans sprouted up like dandelions in your front lawn.




Non-traditional loans include:

Interest only loans mean the buyer pays no principal and only interest for a period of time. Payments are low because the buyer is not paying anything down on the principal, though he can if he wants (though few do). If this is a short-term loan, buyers can benefit from the reduced payments -- it enables them to borrow more in the loan amount. But it all depends on the length of the interest-only period; the shorter the better.
Payment-option ARMs let the buyer choose from a selection of payments: negative amortization, interest only, or fully amortized. The buyer has to be careful not to pile up an even higher debt by always choosing the lowest payment.
Zero-down loans do not require a down payment, so the loan amount, as a percentage of the purchase price, is usually higher than the Fannie Mae guidelines; if the borrower gets a second mortgage to cover the amount above the guidelines, it's called a "piggyback loan" or a "purchase money second mortgage." Ditto if the borrower does not have enough for a down payment, and gets two mortgages instead. (See Understanding Mortgage Types.)
Home Ownership Accelerator Loan Products are mortgage products (or software) that promise to accelerate your mortgage payoff; many times promising that you do not have to change your spending habits! Buyer beware; these products require a high degree of financial dicipline and adequate discretionary cash flow. Please seek independent mortgage advice before applying for any type of home ownership accelerator loan.

Traditional loans are those where the principal and interest are paid in an agreed-upon payment schedule, with a down payment that fits within the usual parameters. Fixed and conventional ARM loans fall into that description.



10.) What's mortgage insurance? Do I need it?
If you are making a down payment of less than 20 percent, you will most likely have to get Private Mortgage Insurance (or PMI). It ensures that the lender is guaranteed, by the mortgage insurer, 80 percent of the loan if you default. The insurance premium amount varies by the loan to value of the house and type of loan. Another option is to get a second mortgage to use for part of the down payment. For example, you can get an 80/10/10 loan (80 percent loan, 10 percent second mortgage, and 10 percent down) or a variation thereof and avoid paying PMI.

Government loan programs, such as FHA or VA loans, are backed by the government rather than PMI. There is no monthly mortgage insurance on VA loans, however you will have monthly mortgage insurance on a new FHA loan.

Next article: Qualifying for a Mortgage

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