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
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.
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.
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 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.
(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.
(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.