MORTGAGE LIBRARY
 

There are many mortgage loan programs available to fit most every financing need. All mortgage plans can be divided into two categories - conventional and government loans. They may then be classified as fixed rate loans, adjustable rate loans, and a combination of loans. Some of the more common ones are -

Veterans Administration (VA)

VA loans are guaranteed by the U.S. Dept. of Veterans Affairs. The guaranty allows veterans to obtain home loans with favorable loan terms, without a down payment with full entitlement. The U.S. Dept. of Veterans Affairs does not make loans, it guarantees loans made by lenders. Qualified veterans may obtain a fixed rate loan or a 3/1 Fixed Period ARM. There is a loan limit established by the VA, currently up to $417,000 in the 48 continental states and $625,500 in Hawaii and Alaska. The veteran must obtain a Certificate of Eligibility from the Veterans Administrative office preferably before applying for the loan.

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Federal Housing Administration (FHA)

The FHA is part of the U.S. Dept of Housing and Urban Development (HUD) and it administers various mortgage loan programs. The FHA basic loans have low cash investment for down payment and/or down payment plus borrower paid closing costs of approximately 3%. There are fixed rate and ARM products, and the FHA offers more lenient credit guidelines than typical conventional loans with 100% gift funds allowed. The seller can contribute up to 6%, and the maximum loan amounts vary by county or metropolitan statistical area.

80/20 Program

This has become a very popular program in recent years because it is 100% financing with no out of pocket expense. 80% of the financing is for a first mortgage and a 20% second mortgage serves as the down payment. There isn't private mortgage insurance (PMI). The interest rate for the second is normally a little higher than the first mortgage. "Interest only" plans may also be available, as well as a Reduced Document option. Some mortgage companies may allow for the closing costs to be covered at a slightly higher rate.

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Adjustable Rate Mortgage (ARM)

Adjustable rate mortgages offer a lower initial rate than the traditional fixed rate program and the interest rate varies over the life of the loan. Depending upon the product, the interest rate can change from monthly to annually with normal caps of 5-6% over the life of the loan. Periodic adjustment caps vary from 1-2% on most programs, and are based on changes in a defined index such as the Treasury options, CD's, Prime Rate, or the London Inter-Bank Offering Rates (LIBOR).

Fixed Rate Mortgages (Conforming)

With the fixed rate mortgage loan the interest rate and your monthly Principal and Interest payments remain fixed for the life of the loan. These mortgages are typically available for 10 years up to 40 years, with the most popular terms being 15 and 30 years. Generally, the shorter the term of a loan, the lower the interest rate. The payments are lower on a 30-year mortgage but if you can afford higher monthly payment, a 15-year mortgage allows you to repay your loan twice as fast and typically save more than half the total interest costs of a 30-year loan. This product is a conforming loan with maximum loan amounts, borrower credit, income requirements, and down payments set by Fannie Mae and Freddie Mac.

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Fixed Period ARMS

Fixed Period ARMS offer homeowners 3-10 years of fixed payments at a lower interest rate before the initial rate starts adjusting for the remainder of the loan. At the end of the fixed period, these ARMS are generally tied to the one-year Treasury securities index. This program is popular for people who know they'll only live in the house for a certain period of time i.e. 3-10 years.

Jumbo Loans (Non-Conforming)

These loans are above the maximum loan amount established by Fannie Mae and Freddie Mac. Because jumbo loans are bought and sold on a much smaller scale, they often have a little higher interest rate than conforming loans.
 

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B/C/D Loans

These are loans that do not meet the Fannie Mae and Freddie Mac requirements, and are offered to borrowers that may have a foreclosure, bankruptcy, or late payments on their credit reports. The interest rates are higher and the programs vary, based upon the borrower's financial situation and credit history.

State and Local Housing Programs

Many states, counties and cities provide low to moderate housing mortgage programs along with down payment assistance for the first time home-buyer. The interest rates are typically lower than market with lower upfront fees. Most of these programs are fixed rate mortgages.

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Balloon Loans

Balloon loans are short-term fixed rate loans with fixed monthly payments usually based upon a 30-year fully amortized schedule and a lump sum payment at the end of its term. The terms are typically 3, 5, and 7 years. The advantage of this type of loan is that the interest rate is generally lower than 15 and 30-year mortgages resulting in lower payments. The big disadvantage is that the borrower will have to come up with the lump sum at the end of the term. Some balloon loans will allow refinancing to convert at the end of the balloon period if certain conditions are met with minimal processing fees. The new interest rate is normally the market rate at the time of refinance.

Negative Amortized Loans

Some types of Adjustable Rate Mortgages offer payment caps rather than interest rate caps that limit the amount the monthly payment can increase. A Negative Amortized Loan becomes negatively amortized when the interest rates rise to the point that the monthly mortgage payment doesn't cover the interest due, therefore; any unpaid interest will be added to the loan balance and the loan balance increases. The borrower always has the option to pay the minimum monthly payment or the fully amortized amount due.

The advantages of negatively amortized loans is that you can control cash flow, take advantage of lower interest rates relative to the market at any given time, and pay back the money borrowed today at a depreciated value years from now. The disadvantage is if the borrower makes only the minimum payment and decides to sell, the payoff can be significantly higher than expected creating cash-flow problems at closing.

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Graduated Payment Mortgage (GPMs)

This type of mortgage plan has payments that start low and gradually increase at predetermined times. The lower initial payment allows the borrower to qualify for a larger loan amount, but the monthly payment will eventually be higher to catch up from the lower payments. The loan will be negatively amortized during the early years of the loan, then pay off the principal at an accelerated pace through the later years. Different lenders have varying plans.

Buy-down Mortgage

A temporary buy-down program with an initial lower interest rate that gradually increases to an agreed fixed rate usually within 1-3 years. This allows the borrower to qualify for more money with the same income and lower payments for the first years of the loan, when extra money can be used to furnish the house or make home improvements. Some new home builders offer this incentive to their buyers or the lender can charge a little higher interest rate to cover the buy-down.

With so many loan programs available it is important to choose the one that best suits your needs. The biggest consideration is how long you plan to stay in the house and the monthly payment you can comfortably afford.

There is also a big difference in mortgage loan companies. Some mortgage companies service and retain most all their own loans, while other companies sell the loans as soon as they close. The rates and fees can and do vary significantly, so it is as just as important to be selective when choosing a mortgage company and loan officer as you are choosing your realtor.