Mortgage Loan Types

Conventional / Conforming / Non-conforming

Many people are sometimes confused and even misinformed on what these three terms really mean. A conventional loan is any loan that is not insured by FHA or guaranteed by VA.

A Conforming loan is a loan that meets strict standards concerning loan amount, down payment, income, credit history and property condition. These loans have the lowest rates available, Fannie Mae and Freddie Mac.

Non-conforming loans are those that do not fit into these strict standards and of course they have slightly higher interest rates.

Which mortgage loan is right for me?

FIXED RATE (10, 15, or 30 YEAR) There is very little risk with a fixed rate loan as the interest and payments stay the same. If you can qualify for a shorter term, 10 or 15years, it will save you a small fortune in interest over the life of the loan. Keeping that in mind, a fixed rate mortgage should only be considered if you are planning on staying in the home for 10 years or longer. If not, an adjustable rate mortgage might really be better for you.

ADJUSTABLE RATE loans generally have a lower interest rate than a fixed rate but they are riskier because the rate adjusts to the market and your payments will change. There are only two reasons to get into an adjustable rate mtg. To qualify for a bigger house… lower rate and payments, or if you know you are going to be in the house for a specified period of time. If you know you are going to move in three yrs then a 3/1 arm would be good for you. A 3/1 is fixed for 3 yrs then adjusts every year after that. So… You would have a lower rate and would move before the rate starts adjusting. Adjustable rate mortgages come in all shapes and sizes; 1 year, 3/1, 5/1, 7/1, 10/1. Be sure to give yourself enough room for delays in your plans. Be aware some of these loans have a prepayment penalty you need to ask about.

BALLOON MORTGAGES are very very risky loans. If anything happens in your life that changes your ability to pay off the balloon or refinance it, you could lose your home. It happens! Balloons usually have lower rates and the balloon or balance is due in 5, 7, or 10 years. Which ever you choose. When the balloon is due and you refinance, you will have to pay closing cost on a new loan so I'm not sure you will really save any money on the implied lower rate.

Besides standard loan programs, there are a large number of unique programs:

· 0 down payment
· Piggyback loans 80-10-10 or 80-15-5. No PMI payments even with 5% or 10% down.
· No income, No asset verification
· Lease Purchase
· Debt consolidation programs
· Home Improvement loans
· Home Equity Line of Credit
· Stated Income

FHA loans are some of the best loan products on the market. If you have slightly less than perfect credit you may still qualify for these loans. The rates may be slightly higher than conventional/conforming loans, but MUCH lower than nonconforming loans. They require only 3% down payment and have special programs that will allow the 3% down to be a gift. FHA is really a blessing to a large percentage of homebuyers. In fact, that is why they were created, to expand the American dream of home ownership. Even low credit scores will work with FHA if payment history and other guidelines fall into place. FHA does allow some late payments. Believe it or not, …it is possible to get a loan with FHA even if you are in chapter 13 bankruptcy!!

FHA guidelines are very complicated and so different from conventional loans that I could never cover it all. That is why it is so important that you find a mortgage company that offers FHA loans. Not all mortgage companies or banks do them because they are so different and because they must be specially approved to offer these products.

If you go to a company that does not offer FHA. You could be put into a loan with a much higher rate than you qualify for. I have seen it countless times!!

VA Loans: VA loan credit requirements are much stricter than FHA and closely resemble conventional loans. I think the only major advantage to VA is the zero down payment requirement, and you can refinance VA to VA quickly at a much lower cost. . VA loans may take longer to close than other loans and their appraisal and inspections requirements are also very strict. Many sellers will not consider selling VA because of the home repairs and red tap.