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Refinance Loan Options


Loan Program
Maximum Loan Amount Minimum Home Equity Easier Qualification No Geographical Constraints Full Range of Loan Products Available for Rental Properties
Conforming

Best possible rate

$417,0001 5%  
Super-Conforming

Best rate for larger loans

$625,5002 10%      
Portfolio Jumbo

More flexible terms

$3 Million 20%    
FHA

Best for lower credit scores

$625,5002 2.25%    
VA

Top choice for military

$625,5002 0%    
USDA/RHS

Top choice for rural homes

$417,000 0%      
Making Home Affordable

When loan exceeds home value

$417,0001 0%

1This is the maximum loan amount for a Single Family Residence. Higher loan amounts are permitted for multi-unit properties.

2Maximum loan amount varies by county, so actual may be lower than what is displayed here.

Conforming Loans

Conforming loans are those which meet the guidelines of Fannie Mae or Freddie Mac (Government Sponsored Entities which purchase the loan from the lender after settlement, thus providing the lender funds which can be leant on a new transaction). Because the lender does not have to hold the loan, there is minimal risk of default to the lender. And because the lender is accepting less risk, the rate is lower than other programs. With few exceptions, conforming loan programs will always have the best rate. However there is a maximum allowable loan amount, depending on the number of units of the property. See Fannie Mae's website for the conforming loan limits.

Super-Conforming Loans

Super-conforming loans emerged from the 2008 Economic Stimulus Bill, which provided a temporary increase in the conforming loan limits. The maximum amounts vary by geographic area, and information on these limits is available on Fannie Mae's website. Like regular conforming loans, super-conforming loans must also meet the guidelines of Fannie Mae and Freddie Mac. However they are treated differently than regular conforming loans. For example, more down payment/equity in the property is required, and the rates are not as good as regular conforming loans. The guidelines and rates, though, are still much better than Portfolio Jumbo loans.

Portfolio Jumbo Loans

Portfolio Jumbo loans are held by the lender which originates them. Portfolio loans are not sold to Fannie Mae or Freddie Mac, but are held in the lender's portfolio (hence the name). Because the lender is not selling the loan, the approval decision lies solely with the lender. As such, more flexibility is available, and "compensating factors" are considered more than for conforming loans. Also, unlike conforming loans, the maximum loan limit does not have geographical constraints. These loans can thus be very beneficial to borrowers needing a jumbo size loan, but reside in an area not supported by super-conforming loan programs.

FHA Loans

An FHA loan is one that is insured against default by the Federal Housing Agency. Because the loan is insured, it is less risky for lenders, so rates and terms are better. However, the cost of this "insurance" is passed through to the borrower. Known as Mortgage Insurance Premium, it is an upfront fee of 1.75% of the loan amount. FHA loans are good choices for borrowers with low credit scores, or who have minimal funds for a down payment . FHA guidelines are also more flexible than those for conforming loans. It is because of these flexible guidelines that FHA loans are often called "first time homebuyer loans".

VA Loans

A VA loan is one that is insured against default by the U.S. Department of Veterans Affairs (similar to how the Federal Housing Authority insures FHA loans). VA loans are very attractive because they allow high loan-to-values, and don't require monthly mortgage insurance. However, like the FHA Mortgage Insurance Premium, VA loans have a funding fee to cover the cost of insurance. This funding fee varies from 0% to 3.15% of the loan amount. The Department of Veterans Affairs maintains an online document with more detail on these funding fees. VA loans are only available for active, retired, or disabled military personnel.

USDA/RHS Loans

Similar to FHA and VA loans, USDA loans (also known as RHS loans) are insured by the Rural Housing Service of the U.S. Department of Agriculture. These loans are for rural residential properties only, typically defined as open country or rural towns with no more 20,000 in population. If the property meets the rural requirement, the loan is very attractive for its low down payment and minimum equity requirements.

Making Home AffordableSM Program

The federal Making Home Affordable Program was initiated by the Obama administration to help homeowners avoid foreclosure. As part of this program, Fannie Mae offers "DU Refi Plus" loans, and Freddie Mac offers "Open Access" loan programs. These programs permit loans that would otherwise be denied due to low appraisal to be refinanced. Thus homeowners who are "upside down" on their mortgage can use these programs to refinance to a lower rate. Even though the new mortgage balance may exceed 80% of the home's value, no mortgage insurance is required. This last part is a critical component of the program.