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Mortgage Loan Programs

There are so many types of mortgage programs and loan programs on the market that it may seem difficult to determine which mortgage is best for your situation. The paragraphs below will cover the main aspect of each type of mortgage. I hope it helps you. If you still have questions just send me an email.

Conventional Mortgage

Many people are sometimes confused and even misinformed on what the terms Conventional, Conforming, and Non-Conforming really mean. It is important that you understand the difference.

A conventional mortgage is any loan that is not insured by FHA or guaranteed by VA. ... That was easy.

Conforming Mortgage

A conforming mortgage 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 Mortgage

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

The following Video goes over the pro's and con's of the 5 major mortgage programs.

Which mortgage Program is right for you?

Fixed Rate Mortgage Programs (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 Mortgage

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. One is to qualify for a bigger house… lower rate and payments mean you qualify for a larger loan amount. The other reason is 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 should ask about.

Balloon Mortgage programs

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. 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.

Unique Mortgage 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 (These loans are very hard to find now.)
  • Lease Purchase
  • Debt consolidation programs
  • Home Improvement loans
  • Home Equity Line of Credit
  • Stated Income (hard to find)

FHA Mortgage Programs

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 mortgages are 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 FHA mortgage 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 offer them because the guidelines are so different and because the broker or bank must be HUD approved to offer these products.

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

We have put together a web site that specifically covers FHA Guidelines.

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. Some sellers will not consider selling VA because of the home repairs and red tape. You can learn more about this kind of mortgage at: VA Guidelines

USDA Rural Development Loans

USDA has two mortgage programs: Direct, and Guaranteed. The USDA Direct mortgage is focused at people with Low to Very Low income (less than 80% of median income). The Direct program is funded totally by the government and is subsidised if you qualify.

The USDA Guaranteed program allows up to 115% of the median income for that county. This program is actually funded by outside lenders and banks. This is one of the most popular programs on the market today.

Both programs do not require a down payment. The interest rates are very low. The only disadvantage is that the property you are buying must be in an eligible rural area. We have two web sites specific for these two programs so you can review the underwriting guidelines. You can view the sites here: USDA Guaranteed Loan or USDA Direct Loan.