General Home Loan Information
In the following sections, you'll learn about the different types of available home
loans. If you have any questions, feel free to call or email
me.
General Loan Categories
- Conventional Home Loans
- Government Home Loans
- Conforming Loans
- Non-Conforming Loans
- Portfolio Loans
- FHA Loans
- VA Loans
- Fixed-Interest Rate Home Loans
- Adjustable-Rate Mortgages and Fixed ARMs
Conventional Home Loans
Any mortgage loan other than a VA or an FHA loan. A conventional loan may be conforming
or non-conforming.
Government Home Loans
Loans purchased or guaranteed by a government organization such as the Government National
Mortgage Association (GNMA or Ginnie Mae). Ginnie Mae is part of HUD and helps increase
the supply of affordable housing by guaranteeing the securities issued by private lenders
that are backed by pools of residential mortgages. These, in turn, are insured by three
federal agencies -- the Federal Housing Administration (FHA), the Department of Veterans
Affairs (VA) and the Rural Housing Service.
Conforming Loans
A loan that conforms to the guidelines established by Fannie Mae or Freddie Mac. These
guidelines establish the maximum loan amount, down payment, borrower credit & income
requirements and suitable properties. Lenders that make loans established by these guidelines
may sell those loans to Fannie Mae or Freddie Mac. These same lenders, however, may retain
the "servicing" on these loans which means that the borrower will continue to
make payments to the original lender. Conforming loans make up the majority of loans in
the United States.
Conforming loan limits are reviewed each year and are sometimes adjusted based on a
formula which revolves around the median price of housing in the nation.
2004 Conforming Loan Limits:
| One Family |
$333,700 |
| Two Family |
$427,150 |
| Three Family |
$516,300 |
| Four Family |
$641,650 |
2005 Conforming Limits:
| One Family |
$359,650 |
| Two Family |
$460,400 |
| Three Family |
$556,500 |
| Four Family |
$691,600 |
* Alaska and Hawaii limit on Single Family Homes is $539,475.
Non-Conforming Loans
A loan that does not conform to the guidelines established by Fannie Mae or Freddie
Mac is called a non-conforming loan. A loan that is larger than the conforming loan limit
is called a Jumbo Loan. Loans that do not meet the credit quality of conforming loans ("A
Paper") are called 'B', 'C' and 'D'-paper loans or "Subprime" loans. Second
mortgages, credit lines, home equity loans and home improvement loans are non-conforming
loans.
Portfolio Loans
Portfolio loans are not sold on the secondary market to Fannie Mae or Freddie Mac, but
are kept in the bank's own portfolio. Portfolio loans may have more flexible qualifying
criteria depending on the individual institution.
FHA Loans
(Note: we do not originate FHA loans)
An FHA loan is a mortgage loan insured by the Federal Housing Authority which is part
of the U.S. Department of Housing and Development (HUD). The Federal Housing Authority
does not make loans, it only insures loans made by approved lenders.
FHA loans have lower down-payment requirements (3%) and are easier to qualify for in
many cases than conventional loans. In recent years, Fannie Mae and Freddie Mac have also
introduced low down-payment programs. FHA loan limits vary geographically by county. FHA
loans are available in 30-year and 15-year fixed and 1-year adjustable-rate loans.
VA Loans
(Note: we do not originate VA loans)
The U.S. Department of Veterans Affairs guarantees mortgage loans for veterans and service
persons. The guaranty allows veterans to obtain home loans with favorable terms, and usually
without a down payment.
The U.S. Department of Veterans Affairs does not make loans, it guarantees loans made
by lenders. Lenders will normally require a Certificate of Eligibility before they can
process a VA loan. This may be obtained by sending the Form DD-214 to the local VA office
along with VA Form 1880.
Lenders offer 30-year fixed, 15-year fixed and adjustable-rate loans under the VA program.
The most attractive feature of a VA loan is that no down payment is required. In addition,
it is easier to qualify for a VA loan than a conventional loan. This is because the loan
is guaranteed by the U.S. Department of Veterans Affairs.
Fixed Interest Rate Home Loans
Fixed loans are generally amortized over 10,15, 20, 25, or 30 years. The interest rate
remains fixed for the period of the loan. Fixed rates are popular when interest rates are
low and when the owner plans on being in the home for the life of the loan or the borrower
is only comfortable with a fixed payment amount each month. When fixed rates are higher,
some homebuyers may be unable to afford the higher payments required by fixed loans and
may prefer to get an adjustable rate mortgage (ARM).
Adjustable Rate Mortgages and Fixed ARMs
Adjustable rate loans are loans whose interest rate fluctuates over the term of the
loan. These loans typically offer lower interest rates than their fixed counterparts, and
are based on monthly, semi-annual, annual, or term adjustment periods. The interest rate
on an adjustable rate loan is based on a predetermined "Index" plus a "Margin"
to equal the "Note Rate" (the rate you pay). The newest form of adjustable rate
mortgages are known as "2-step loans" or Fixed-ARMs because the loan starts as
a fixed rate loan for 3, 5, 7, or 10 years, after which it converts automatically to an
adjustable rate mortgage thereafter for the balance of the term. All adjustable rate loans
have "caps" which limit how much the interest rate (or payment, in the case of
a negative amortization loan) can adjust periodically and over the life of the loan.
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