Fixed Rate Loans - Both interest rate and
payment remain the same over the term of the loan. Loans can be
amortized over the following terms: 10, 15, 20, 25, 30, and 40 years.
The advantage of a fixed rate program is that it allows you to
get a fixed rate,
over a specified period, without being concerned about market
fluctuations. This type of financing is recommended for borrowers who
intend to stay in their house for a long period of time.
Fixed Rate Balloons - Both interest rate
and payment remain the same until the loan is due. Typically, the entire
loan amount is due in either 3, 5, or 7 years. The advantage of balloon
programs is that they tend to
have the lowest
rates, due to the fact that the entire balance must be paid off or
refinanced at the end of the term. This type of financing is recommended
for borrowers who know they will be leaving their current house in
either 3, 5, or 7 years.
Adjustable Rate Mortgage (ARM) - Both
interest rate and payment remain the same for a fixed time period,
usually 1, 3, 5, 7, or 10 years. At the end of that period the rate can
rise at fixed intervals. The amount the rate can rise, or margin, is
predetermined (normally 1/2% to 2% per rise). The intervals are normally
1, 3, 6, or 12 months. Typically there is a cap on the margin, which
determines the highest the rate could ever go. The advantage of an ARM
is that it allows you to
get a lower rate,
for a known period of time, while you watch the market to see if and
when fixed rates get better. Some feel that although they may have
gotten a better rate with a balloon, an ARM will adjust at the end of
the "fixed period", whereas a "Balloon" has to be refinanced or paid in
full. ARMs are recommended for those borrowers who intend to stay in
their house for a fixed period and have taken the time to factor in the
margin, to determine that they would not be better off with a Fixed
Balloon or even a Fixed Rate.
Buydown - Both rate and payment remain the
same for a fixed period, at the end of which, the rate and payment
increase. The rate and payment may increase once, twice, or even three
times, depending on whether the Buydown is a 1/1, 2/1, or 3/1. The
percentage of increase, as well as number of increases is predetermined.
Once all of the increases have occurred the new rate and payment remain
fixed for the term of the loan. Also, lenders will typically charge a
fee to "buy the rate down" for the first 1, 2, or 3 years of the loan.
The advantage to a Buydown is that it offers a
lower rate and
payment during the first few years of the loan. Buydowns are
recommended for those borrowers who are having trouble qualifying for a
Fixed Rate Loan or those who need a more affordable payment at present
Conforming - Conforming loans refer to loan
amounts that conform to government service standards as determined by
Fannie Mae & Freddie Mac (the original government agencies, set up in
the early 1940's, established to help people finance new homes).
Conforming loans range in amount form $1 to $275,000. Although not all
conforming loans are serviced by these government agencies, the mortgage
industry has adopted the term to express loan amounts in this range.
Jumbo (Non-Conforming) - Jumbo loans refer
to those loan amounts outside of the "conforming" range or, above
$275,000.
Government Loans - Government loans refer
to those loans that are guaranteed by one of two federal agencies. The
two types of government loans are: Federal Housing Administration (FHA)
loans, and Veterans Administration (VA) loans. The advantage of
financing using FHA loans are that they are easier to qualify for and
allow a borrower to finance more of the loan amount than non-government
loans. Whereas with a Conforming loan a borrower may only be able to
finance 80% of the loan amount, a FHA loan allows a borrower to finance
97% of the loan amount. FHA loans are recommended for those borrowers
who are first-time buyers, have little money to put down, have a short
credit history, or are having trouble qualifying for a Conforming loan.
The two main advantages of financing using VA loans are that the VA
allows borrowers to
finance 100% of the loan amount, and that, the VA only requires
proof of veteran status to qualify for the loan. The only drawback to
government loans is that mortgage insurance is required at all loan to
values (LTV), unlike Conventional and Jumbo loans where payment of
mortgage insurance is determined by the amount of equity a borrower has
in his home.
Investment Properties (Non-Owner Occupied)
- These types of homes are normally acquired specifically for investment
purposes or are owned as a result of moving to a new house without
selling or being able to sell the old house.
Financing for
investment properties can be achieved using any of the above
described programs. Typically, the rates for financing on investment
properties are higher than owner occupied homes and the LTVs allowed are
lower, due to the fact that default rates tend to be higher on these
types of loans.
B, C, D Credit -
Just because your
credit isn't perfect does not mean you can't obtain financing. Most,
if not all of the above described programs can be utilized even if a
borrower does not have perfect credit. In these cases the rates will be
higher and LTVs allowed will be lower. Most lenders have special
divisions specifically created for the marketing and sales of sub-prime
products. Also, most lenders will offer special limited programs as
incentives, when they recognize an area where there is a need.
No Document or Low Document Loans - In
certain situations it is either difficult or impossible for potential
borrowers to show a lender their income on paper. In these instances any
of the above described programs can be used, but under circumstances
called NIV or No Income Verification. All of the other program
parameters must be met, however, in the case of income, a borrower may
only be required to show a operating license or business license and/or
limited income information. With this type of financing, rates offered
tend to be slightly higher. This type of financing is recommended for
self-employed borrowers or borrowers who have difficulty showing their
income on paper, for one reason or another.
Cash-Out Refinances - Occasionally, when
refinancing a first trust, a borrower wants to "cash out" some of the
equity that has been built into the loan. Under specific conditions,
established by the lender, a borrower can actually receive a check for
an amount of money that meets those conditions. Cashing-Out is not
normally limited to any type of loan program, it can be done with most
of the described programs. |
