| 1. |
Government Loans :
The next three agencies offer government-insured loans and the
properties must meet certain standards to apply. |
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FHA
Loans |
Federal Housing
Administration (FHA), is part of the United States Department of
Housing and Urban Development (HUD). FHA loans allow for a
smaller down payment, usually 3-5%, and generally are easier to
qualify than conventional loans. FHA loans have a statutory limit,
see yearly loan limits,
click here.
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VA Loans |
This loan is designed to
help qualified veterans and service persons to obtain home loans
with favorable terms and no down payment. VA Loans are guaranteed by
the United States Department of Veterans Affairs. VA Loans
have a limit of $203,000. The VA determines eligibility,
qualifies applicants and issues a certificate of eligibility.
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RHS Loans |
Rural Housing Service (RHS)
is part of the United States Department of Agriculture. These
loans are for low to moderate income households who live in small
towns / rural areas. RHS loans have minimal closing costs and
no down payments.
|
| 2. |
State &
Local Loans |
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Housing Programs |
Many cities, counties
and state housing agencies offer special programs for the first time
buyer. These low to moderate housing finance programs have
down payment assistance and generally are more lenient on the
qualification guidelines. One example of this type of loan
would be Mortgage Credit Certificate (MCC) which permits you a tax
credit for part of your interest payment. Usually these
programs are fixed rate loans with lower than current market rates.
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| 3. |
General
Loan Types |
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Conforming Loans |
Two types of conventional
loans exist, and they are conforming and non-conforming. All conforming loans have
conditions and terms that follow the guidelines set forth by
Fannie Mae and Freddie Mac. Fannie Mae and Freddie Mac
purchase loans complying with the guidelines from mortgage
lending institutions, then they package the mortgages into
securities and sell the securities to investors. Fannie Mae and Freddie Mac,
like Ginnie Mae, provide a continuous stream of affordable
funds for home financing resulting in the availability of
mortgage credit for Americans. Guidelines set by Fannie
Mae and Freddie Mae consist of maximum loan amount, credit
and income requirements, down payment, and suitable
properties. The guidelines / limits are announced and adjust
each year. Click
here for the historical limits for first
mortgages.
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| |
B/C
Loans |
All loans not meeting
the borrower credit requirements of Fannie Mae and Freddie Mac are
called 'B', 'C' and 'D' paper loans. Loans conforming to
credit requirements are referred to as 'A' paper. These loans
are designed to assist persons who have had a bankruptcy,
foreclosure or late payments on the credit report. The rates
and interest vary depending on the credit history and borrower's
financial situation.
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Jumbo
Loans |
As the name states,
jumbo loans are larger loans above the maximum loan amount
established by Fannie Mae and Freddie Mac. Jumbo loans usually
have slightly higher interest rates because institutions buy and
sell less quantity each year than conforming loans.
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| 4. |
Fixed
Rate Mortgages: Interest rate
and mortgage monthly payments remain fixed for the period of the
loan |
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FRM
Loans |
Fixed Rate Mortgages are
available for 10, 15, 20, 25, 30 and 40 years. Usually, the
shorter the term of the loan, the interest rate is lower. The
most common selected length of FRM Loan is 15 and 30 years.
Obviously the shorter the term of loan, the less interest is paid
for the life of the loan.
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Balloon Loans |
For those looking for a
lower fixed monthly payment with a lower interest rate than a FRM
Loan, a Balloon Loan may be for suitable. The difference is a
Balloon Loan is usually for 3, 5 or 7 years, however this type of
loan has a lump sum payment at the end of the term. Some
Balloon Loans have refinancing options at the end of the term to
convert the mortgage to a FRM, if certain conditions are met.
These options loans are often referred to as 5/25 Balloon or 7/23
Balloon.
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| 4. |
Adjusted
Rate Mortgages: Interest rate
and monthly payments, fluctuate over the period of the loan |
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Variable or Adjustable Rate Loans |
These loans (ARM), Variable or
Adjustable, have fluctuating interest rates and monthly payments
over the life of the loan. Periodic adjustments, predetermined in the loan structure,
create up or down adjustments
based on a defined index. Therefore, interest rates will be
adjusted causing the monthly payment amount to adjust. Most ARM's,
the interest rate can adjust every month, every three or six months,
once a year, every three years, or every five years, depending on
the original contract. Usually Adjustable Rate Loans have a lower initial interest rate
than fixed rate loans.
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Negatively Amortizing Loans |
When a loan has a
payment cap but has no periodic interest rate cap, it may
become negatively amortized. On a Negative Loan it is possible
to have the loan balance increase rather than decrease. How
this happens is when the interest rates rise to a level the
monthly mortgage payment does not cover the interest due, any unpaid
interest will get added to the loan balance.
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Combined (Hybrid) Loans |
A Hybrid loan is a
combination of a Fixed Rate Mortgage (FRM) and Adjustable Rate
Mortgage (ARM). These loans come in many different varieties.
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Two-Step Loans |
A Two-Step Loan has a
fixed rate for a predetermined time, usually 5 or 7 years, and then
the interest rate adjusts to the current market rates. After the
adjustment period, the loan remains at the new rates for the balance
term of the loan, 25 or 23 years.
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Graduated Payment Mortgages |
Graduated Payment loans
start with a low monthly payment and gradually increase the monthly
payments at predetermined times. This loan usually allows a
person to qualify for a larger loan amount. Please note, the loan
will be negatively amortizing when the payment years are low, then
reduces the principal during the higher payments years.
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Buydown Loans |
A Buydown Loan starts
with a discounted interest rate and then gradually increases to an
agreed upon fixed rate, usually this takes place within the first
one to three years. This type of loan allows people to
purchase a more expensive home and have lower initial monthly
payments. To qualify for this loan type a lump sum payment to the
lender at the beginning is needed. Options do exist and in
some cases the lender can adjust fees with a raise in interest
rates. The most popular Buydown Loan is called a 2-1 buydown. |
