Question: I am sure this has been asked before, but I am new to this newsgroup. If anyone has this info please e-mail me or post to the group.

Question:

Can someone explain the different types of loans to me and who may apply for the loan?

FHA, MHFA, MCC, VA, MCAD and any others you can think of. Also explain the abbreviations of the loans.

Also, What is meant by “creative financing”? A

Answer: Federal Housing Authority. Federal program which allows house purchases under very favorable conditions to buyer, with such low dp’s as 3% of purchase price.

I understand the paperwork is a bear, and that FHA can be very picky about the condition of the property — no peeling paint on the exterior allowed, for example. My Mom, a loan broker, recommended that if we could do without the FHA program, that we do so, since many lenders find them hard to do, and very bureaucratic (and so will not try real hard to close the loan). What state are you in? CA has the Calif Housing Finance Agency (CHFA), so I’d imagine that it’s your state agency. The CHFA loans typically allow below market-rate 30-year fixed loans to lower income buyers. Mortgage Credit Certificate. We have one. :^) The basics: instead of the standard 100% deduction for the mortgage interest paid at the end of the tax year, the buyer is allowed an 80% deduction, and a 20% credit (a dollar-for-dollar *credit* against the bottom line of taxes owed). *Very* advantageous! The other benefits are that you can increase the standard loan ratios, can adjust your W-4 withholding allowances to give you additional income and less taxes paid upfront (since you’ll be paying less tax at the end of the year), and the additional income from the increased withholding is figured into your take-home pay for loan qualification.

In order to qualify, you cannot make more than the median income amount for your county, and the purchase price of the house has a cap set on it according to local median as well.

In CA (Alameda County) the application fee was $300, and the forms need to be notarized. Money is allocated on a fiscal year basis, and if you apply too late in the year, all the allocations may be gone.

This is a federal program, and was recently renewed on a permanent funded basis in Clinton’s 1993 tax/budget bill. Veteran’s Administration. One of you must be a vet to use this program. Some terms allow little to *no* $$ down, higher ratios, less income, etc. CA has another program called the Community Homebuyers’ Program. It can be used in conjunction with other programs, unlike some of the above loan programs. (In fact, we used it with the MCC program). Basically, this program is aimed at providing (and scaring! :^) prospective buyers with a dose of reality *before* they get emotionally involved in the purchase process. There is a two-evening seminar (3 hours each) where the pros and cons of purchasing are discussed. Worksheets on budgeting, ratios, loan qualification, inspection items, etc are handed out. Our seminar had several guest speakers, including a very good home inspector who talked about hidden problems the average buyer never thinks to look for.

the statistics show that those people who have attended these seminars are encouraged to look seriously at the decision, rather than being swept up into the fantasy of owning a home. As a result, the loan default rate of these participants is quite low for the industry (1% or so, and usually because of illness, divorce, layoff). Because the program thus “weeds out” some of the deadbeats, the buyer who has a CHB certificate can qualify for certain things, or mitigate others on their application (bad credit, less cash reserves than typical, high ratios, PMI payments). for example, we only had to pay 2 months of PMI in escrow (as opposed to the more regular 14), were not required to have 2 months of reserve after closing, and some past credit dings were considered less important.

There was no cost — you just need to find some bank or lender that has an approved CHB seminar, and be prepared to get the hard sell from that institution that you bring your loan to them if and when you decide to buy. Anything the banks don’t tell you about, find difficult, or don’t like. Some creative financing aspects may include gift $$ from relatives, the seller financing a small second, and a conventional mortgage.

Read some books on buying to get more comfortable with some of the terms. The more knowledgeable you sound when you speak with the lender broker, the realtor, and the other people, the less likely they are to treat you as a non-participant. Information is *definitely* the name of the game in this transaction, so get as much as you can.

And remember, no-one in this game is your friend, so don’t try to be liked — aim for respect instead.

Hope this helped, and feel free to email if you need more details.

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