Loan Types

FIXED RATE MORTGAGES

The most widely used programs are the 30 year and 15 year fixed loans.

30-year fixed rate mortgages offer the lowest monthly payments of any of the common fixed-rate loans. 15-year fixed rate mortgages have a shorter life. Because the loan is shorter, you’ll pay less that half the total interest of a 30-year mortgage. However, because you repay the loan in half the time, the monthly payments will be greater.

With a fixed rate mortgage, you know exactly what your principal and interest payment will be each month for the life of your loan. It won’t change because your interest rate doesn’t change. 

If interest rates go up, you’re protected with a fixed rate mortgage.  But you won’t benefit if rates go down. The two variable factors of the loan payment are the “property taxes and the homeowners’ insurance.” Unfortunately, there is no way to lock those in. 

You can always take advantage of falling rates by refinancing. Fixed rate mortgages might be right for you if: 

·   Want the security of a fixed principal and interest payment;

·   Think that interest rates will go up;

·   Are on a fixed or limited budget.

 Adjustable Rate Mortgage (ARM)

Compared to fixed rate mortgages, an ARM offers a lower interest rate to start, so your monthly payments are generally lower. But the interest rate moves up and down with the market based on an index. Some of the more common indices include: U. S. Treasury Bills, Cost of Funds Index (COFI) and the London Inter-bank Offered Rate (LIBOR). 

Most ARMS have an initial fixed rate period where the interest rate doesn’t change, followed by the rest of the loan’s lifetime period where the rate is adjusted at predetermined intervals. Many ARMS have caps that limit how much your interest rate can change per period, as well as for the life of the loan.

An Adjustable Rate Mortgage might be right for you if: 

·        You want more property than you can qualify for now with a fixed rate;

·        You are confident your income will increase or rates will not go up much;

·        You plan on selling or refinancing within seven years of buying your home.

 Interest Only Mortgage

This is an alternative way of arranging a mortgage, and works differently to a Capital & Interest (Repayment) Mortgage. Your monthly repayments to the lender are only made up of interest, and do not go any way towards reducing your mortgage balance.

Interest-only mortgages are for borrowers who have a good reason for preferring the lower initial required payment, and are prepared to deal with the consequences.

Bi-Weekly Mortgage

This is usually a 30-year fixed rate mortgage. What’s different is that payment for half the monthly amount is made every two weeks. In this way you make the equivalent of 13 months worth of payments every year. As a result, your loan term can shorten to 18 to 22 years, providing a substantial decrease in total interest costs.

 LOAN PROGRAMS

There are many types of loan programs available today. In an effort to simplify our presentation, we will focus on the six most popular. 

1) A Conventional Loan is one that meets the underwriting guidelines of the Federal Secondary Market Association such as Fannie Mae & Freddie Mac among others. Fannie and Freddie tend to be more conservative and impose governed limitations on certain aspects of the loan such as loan amount, down payment, mortgage insurance, and so forth. A “conventional mortgage” simply refers to any mortgage loan that is not insured or guaranteed by the federal government.

2) Government Loans are mortgage loans that are backed by the federal government. The Federal Housing Administration (FHA) does not make or guarantee loans; it simply insures them.

The insurance removes or minimizes the default risk lenders face when buyers put down less than 20 percent. FHA loans are becoming popular again. It has been around for a long time, since June 27, 1934.

If your credit is less than perfect, FHA might be the loan for you. You may qualify for an FHA loan even though you have had financial problems. The following represent a few benefits of an FHA loan:

·       Your average credit score can be lower than those for a conventional loan.

·       You can obtain an FHA loan two to three years from the date of your bankruptcy discharge or      foreclosure, as long as you've maintained good credit since the occurrence(s).

·       3.5% minimum down payment will help reduce your closing costs if you qualify.

Due to the recent mortgage crisis and credit crunch, most lenders are requiring that borrowers have a minimum middle credit score of 640. This will vary based on the lenders discretion and is subject to change without notice. In many markets the rates and terms are excellent especially for borrowers with less than stellar credit.

3) VA Loans offer veterans the opportunity to purchase a home with liberal qualifying standards and no money required for down payment. Of most importance to the lenders, was that the VA guaranteed a portion of the loan to protect the lender in the case of default by the borrower. FHA underwriting guidelines (for the most part) are applied to these loans. 

4) USDA Loan is a Government insured 100% purchase loan. These Loans are only offered in rural areas and serviced by direct lenders that meet federal guidelines. A specialty program designed to promote growth and improve the property tax base in the out lying areas of large cities.

Not every home or buyer will qualify for this loan. If they do qualify they will be getting one of the top mortgages, with lowest interest rates in the market today.

As a side note, USDA also offers a USDA Rural Development Direct Mortgage for people with low to very-low income. The guidelines for the “Direct” loan are quite different so you should visit this site:  http://www.usda-rural-development-direct-mortgage.com

Most mortgage lenders originate both conventional mortgage loans and government loans, though the government-share has increased markedly since the mortgage crisis got underway.

In fact, many suggest that FHA lending has essentially replaced the subprime lending market.

5) New Construction loans are used to finance the building of a new home.. They are usually variable-rate loans that have interest-only payments during the construction phase. Draws are scheduled based on the stages of construction to pay the builders.

A draw is an installment payment arrangement agreed to in advance by the borrower and the contractor or the builder. Many construction loans are construction-to-permanent, which means that when construction is complete, the loan is converted to a normal mortgage. This has the advantage of a single loan with one closing.

6) A Jumbo loan is larger than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. The actual jumbo loan amount will vary from state to state. Jumbo loans cannot be funded by these two agencies; therefore they usually carry a higher interest rate.

  Mortgage Assistance Program
  Office: 281.674.5897 Fax: 713.634.2838
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