Conventional Programs
Conventional mortgages are those which
are not insured by the FHA/VA and thus not subject to
their rules and regulations. These loans are offered by
banks, savings and loans, credit unions, and mortgage
bankers. Although these lenders also offer reduced down
payment programs, the insurance for these loans is
offered by private sector insurance companies, hence the
name private mortgage insurance (PMI). PMI is usually
required if the down payment on the home is less than
20%.
FHA/ VA Programs
One way of dividing the world of
mortgage programs is by distinguishing between those loans
insured by the Federal Government and those that are not.
Those loans that are so insured are guaranteed by either
the Federal Housing Agency (FHA) or the Veterans
Administration (VA) and are known by those abbreviations.
The idea behind these government programs is to promote
the social goal of broad home ownership.
Their primary benefit is the
borrower’s ability to buy a home with very little
down payment. Being able to afford the down payment and closing
costs is a major obstacle to home ownership for most
first time home buyers. Statistically speaking, the
smaller the down payment for a home, the higher is the
chance the borrower may run into financial difficulty and
be unable to make payments on the loan. FHA and VA
insurance insures the lender against any loss which may
arise if the borrower is unable to make payments on the
loan.
Many states and municipalities also
have special programs which promote home ownership for
its citizens. Your loan officer can tell
you what is available in your community.
Stated Income Program
Are you self employed? We have "stated
income" loan programs where you simply state
the income you make. No verification is done
and interest rates are very competitive.
These types of loans are particularly useful for the following
borrowers:
- Self Employed
- Hard to Qualify
- Can't Show Income
- Prefers Not to Show Income
- 1st Time Home Buyer
Fixed
Rate Mortgages
Another basic division is between fixed
rate and adjustable-rate mortgages. A fixed
rate mortgage is one in which the interest rate and
payment remain constant throughout the term of the loan.
Fixed rate loans are fully amortized, meaning that the
fixed monthly payments will completely pay off the debt
(both principle and interest) over the term of the loan.
Fixed rate mortgages are generally available with 30 year
or 15 year terms.
Adjustable
Rate Mortgages
Unlike fixed rate mortgages, Adjustable
Rate Mortgages (ARM’s) can change at regular
intervals (called "adjustment periods")
according to changes in prevailing interest rates.
All ARM’s have the following
characteristics: the "start rate" is the
initial interest rate on the loan. A "life cap"
is the maximum interest rate for the life of the loan and
is often set at a certain percentage over the start
rate. During the life of the loan, the interest rate will
be a combination of the particular index
for that loan program which will change over the life
of the loan and a constant margin which will
remain the same over the life of the loan.
The interest rate on the ARM will
adjust to changes in the index according to a schedule
which is known as the adjustment period. The
adjustment period could be as short as a month or as long
as a year depending on the program and the index used.
Each time the interest rate changes, the monthly payment
is re-calculated so as to pay off the loan during the
term remaining.
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