Most lenders use FNMA (Fannie Mae) or FHLMC (Federal Home Loan Mortgage Corporation, Freddie) loan products as most individuals know now that these agencies have been all over the recent news. This does not mean that the mortgage banker or mortgage companies will offer all of the same products that are available through these agencies. The mortgages are funded by the Bank or Mortgage Company and then the loans; are usually sold to Fannie or Freddie. Not always but usually. They follow the programs, guidelines and features of the agencies products. Sometimes they retain the servicing rights to the loans. There are many loan types we will discuss and these are basically FNMA products. This is not all inclusive; but this will help any person who wants to learn what some of their options are.
Conventional Fixed Rate Conforming Loan:
This loan type is considered a loan that has a fixed rate for the life of the loan and the maximum loan amount for 2010 is:
$417,000 – 1 unit, single family dwelling.
533,850 – 2 units, two family dwelling
645,300 – 3 units, three family dwelling
801,950 – 4 units, four family dwelling
High-Cost Areas Limits are:
$729,750 – 1 unit, single family dwelling
934,200 – 2 units, two family dwelling
1,129,250 – 3 units, three family dwelling
1,403,400 – 4 units, four family dwelling
Alaska, Guam, Hawaii, and the U.S. Virgin Islands have slightly different maximum conforming loan limits.
Non-Conforming/Jumbo Fixed Rate loans; are those over and above the $417,000 for a single family dwelling. This would mean that for a single family dwelling; the non-conforming loan amount would be above $417500. The million dollar single family dwelling would be a Jumbo loan or Non-conforming loan amount.
There are certain lenders or investors who make Jumbo loans or Non-conforming loans. In some instances a Bank will make the loan on the consumer side of financing; rather than the Bank’s mortgage department. On occasions; the loan to value may be no more than 80%.
Conventional Conforming Adjustable Rate Loan (ARM)
These are conforming loans with the same maximum loan amounts listed for the fixed rate loans and they have adjustable rate loan features. Full in-depth details about these loans are available as anyone who opts for these loans must understand all of the details and know exactly what kind of ARM product they are receiving.
This loan is not a fixed rate loans and the interest rate will fluctuate at different intervals depending upon the type of ARM product you choose. Each ARM products has different features and it is important to know exactly how the ARM loan works and changes periodically as well as over the life of the loan. These loans can be tricky and are not for all borrowers.
Additional Products that are offered by some, but not all Bank Mortgage Departments and Mortgage Companies:
Flexible 97: This is a Fannie Mae product which will allow for 3% down payment for those borrowers who have fewer funds to put into the transaction. This will allow for a flexible source of funds such as gifts, grants, unsecured loans from a relative, public agencies, non profits, employers or secured borrowed funds. This loan has a 40 year term feature for those who need it.
Construction-to-Permanent Financing (Single-Closing Transaction): This is a product where someone wants to construct a dwelling and close the construction loan and the permanent loan at one time only; rather than obtaining the construction loan through a bank and then refinancing it with a mortgage. This product requires a minimum of 5% down payment.
Interest-Only: Interest only loans are now offered based upon an applicant’s ability to sustain payments subsequent to the initial interest-only period. It is offered for those borrowers who are choosing this product as a financial management tool, versus an affordability tool.
Native American/Section 184: This loan must be a HUD (FHA) loan. These loans are to help increase lending on tribal trust or restricted loans. These loans are eligible to Native American families, tribes, and Indian Housing Authorities (IHAs) under the U.S. Department of Housing and Urban Development (HUD). Meaning FHA. This type loan may be used to construct, purchase, rehabilitate and refinance eligible properties. Private mortgage is not required for these loans.
Rural Development/Section 502: This product is called a USDA loan which means that it is an agency of the U. S. Department of Agriculture. This product offers to qualified borrowers 100% financing. There are income limitations, and eligibility requirements for someone to receive this product. The minimum score on this product is 620 and this loan is a great loan for those with little minimum income and/or no down payment funds and need assistance from the seller as this loan allows 6% contributions.
*Balloon Products- the balloon standard product is no longer offered
The above products are all Conforming loan amounts. Each of these products have different features to include but not limited to: income requirements, credit score minimums, debt to income ratios, cash reserves, down payment and loan to values.
Summary
Mortgage loans are available in all shapes and sizes just like you were being fitted for a suit. This is one of the reasons why the Loan Officer quizzes you regarding your employment, credit, debt load, assets and how long you intend to stay in your home. It is not an uncommon thing in the past for a client to walk into a mortgage loan office and when the Loan Officer starts asking questions; they begin to look at each other in dismay.
It could be unfortunate for these people who have not taken it upon themselves to be informed and educated sufficiently regarding the financing of a mortgage loan. It is wise to know what type interest rate option you need; fixed rate or adjustable, and understand the parameters of each. This also means that you must select what kind of amortization term (10, 15, 20, 25, 30 years), you need to be comfortable making the payment. The longer the term, the lower the payment. It is advised to never walk into a lending office without having sufficient funds for down payment and closing cost. Now more than ever, down payment funds, saved in advance is essential for obtaining the right mortgage for your needs. One must think about loan to values, also. Surprises are not something you need when you are budgeting for buying a home. Anyone who has a loan with a loan to value greater than 80 percent ( down payment less than 20 percent), must carry MI (mortgage insurance); default insurance. The more knowledge you have about your mortgage financing; the better off you are.