When facing difficult decisions in regard to a change of status in your income as it relates to remedies for relief on your mortgage it is imperative that you know what kind of loan you really have on your residence.
Although there are some variations within the basic categories there are three general types of loans.
This type of loan provides an insurance policy issued by HUD and paid for by the borrower, included in their monthly mortgage payment to the lender. It insures the lender that in the instance of a default the lenders principal balance and fees of collection will be paid by the FHA insurance. Currently, borrowers who qualify, can borrow up to 97% of the property’s appraised value.
VA loans are guaranteed by the Veterans Administration and only available to veterans of the armed services. Similar to FHA insured loans the lenders principal balance and fees of collection are paid by the Veterans Administration. Under VA guidelines, borrowers who are veterans of the armed services can borrow a full 100% of the appraised value of the property.
This type of loan, which does not have any federal insurance or guarantees, is issued by individual lenders. This type of loan typically is only issued for 80% of the value of the property. Borrowers who do not have a 20% contribution to bring to closing can apply for a junior, or 2nd mortgage on the property. These junior loans are issued at a higher interest rate and can require a Mortgage Insurance policy to be issued on this junior loan to minimize the lenders risk of default.
It is important, when evaluating your options for an alternative to foreclosure, to know what remedies are available to you for a loan modification, short sale or deed in lieu of foreclosure.
There has been a great deal of discussion in regard to the new federal relief programs available to borrowers in recent months. It is important to note that these programs only apply to federally insured loans. The Making Homes Affordable program and the HAMP programs for loan modifications only apply to FHA and VA loans. The federal short sale assistance program, HAFTA, only applies to non federally insured or guaranteed loans.