Conventional
Loans
Conventional loans are mortgage loans other than those insured or
guaranteed by a government agency such as the FHA (Federal Housing Administration),
the VA (Veterans Administration), or the Rural Development Services (formerly
know as Farmers Home Administration, or FmHA). Conventional loans are the type
of loans where your Principal and Interest Payment stay the same for the length
of the loan. Common Conventional Loans are either 30, 20 or 15 years in length.
The amount of money you will need for a down payment on a Residential purchase
is 5% of the purchase price.
FHA Loan
An FHA loan allows you to buy a house with as little as 3% down, instead of the
higher percentages required to secure many conventional loans. Taking advantage
of the FHA loan program is a great way for first time buyers, or anyone with a
shortage of down payment funds, to buy a home.
The
FHA does not make home loans - it insures them. If a home buyer defaults, the
lender is paid from the insurance fund. To get an FHA home loan, you'll need to
have a good credit history, and sufficient income to qualify for the loan. Also,
there is a "loan limit" associated with this type of loan. Currently,
your residential purchase cannot exceed $210,900.
How
Much FHA Loan Can You Afford?
For an FHA loan,
your monthly housing costs should not exceed 29% of your gross monthly income.
Total housing costs include mortgage principal and interest, property taxes, and
insurance. Those four terms are often lumped together, and referred to as PITI.
Adjustable
Rate Mortgage (ARM)
With a fixed rate mortgage (FRM),
your monthly payments will be steady. In contrast, with an Adjustable
Rate Mortgage (ARM) , your payments will vary over time. Adjustable
rate mortgages typically have an initial fixed rate lower than the rate of a comparable
fixed rate mortgage. The initial fixed rate period is followed by adjustment intervals.
For example, a "3/1 ARM" is fixed at an initial low rate for the first 3 years,
and then adjusts every year based on an index. Common ARMs are: 1/1, 3/1,
5/1, 7/1, and 10/1. (Don't confuse ARMs
and Balloons).
VA Loans
For Veterans. These loans are often made without any down payment at all, and
frequently offer lower interest rates than ordinarily available with other kinds
of loans. Aside from the Veteran's Certificate of Eligibility and the VA-assigned
Appraisal, the application process is not much different than any other type of
mortgage loan. There is a "loan limit" associated with VA loans. Currently,
your residential purchase cannot exceed $240,000.
7-Year
Balloon:
This loan is exactly what its name describes. It is a 30-year
amortization with a 7-year balloon. At the end of seven years, the entire balance
is due or could possibly be refinanced.
JUMBO
Mortgage Loans:
JUMBO mortgage loans are loans for properties that will exceed
the maximum loan limits for Fannie Mae or Freddie Mac, conforming conventional
loans. A typical example of a JUMBO loan would be a $500,000 sales price with
15 percent down giving you a loan amount of $425,000. That loan amount would exceed
FNMA/FHLMC loan limits, which currently are $321,900. JUMBO loans typically are
10, 15, and 20, 30-year fixed and 1-year arms. Interest rates will typically be
1/8th to 1/4 percent higher than conforming loans.
Non-Conforming,
Sub-prime, BCD Loans:
These loans typically will have different characteristics
than conforming loans. They may consist of 100 percent Loan-to-Value purchase
loans, 90 percent Loan-to-Value non-owner occupied purchase loans to a number
of different programs for cashout refinances, builder bailout loans, avoiding
foreclosure loans, to helping credit challenged borrowers. Typically the interest
rate on these loans will be higher than conforming loans, however, underwriting
is more liberal and these loans appeal to a wider variety of people.
