FHA Loan:

FHA mortgage loans are issued by federally qualified lenders and insured by the U.S. Federal Housing Authority, a division of the U.S. Department of Housing and Urban Development.

FHA loans are an attractive option, especially for first-time homeowners:

·         Generally easier to qualify for than conventional loans.

·         Lower down payment requirements.

·         Cannot exceed statutory loan limits.

Learn more about FHA loans. (Department of Housing and Urban Development)

VA Loan:

Designed to offer long-term financing to American veterans, VA mortgage loans are issued by federally qualified lenders and are guaranteed by the U.S. Veterans Administration. The VA determines eligibility and issues a certificate to qualifying applicants to submit to their mortgage lender of choice. It is generally easier to qualify for a VA loan than conventional loans.

Here's how it works:

·  100% financing without private mortgage insurance or 20% second mortgage.

·  A VA funding fee of 0 to 3.3% (this fee may be financed) of the loan amount is paid to the VA.

·  When purchasing a home veterans may borrow up to 100% of the sales price or reasonable value of the home, whichever is less.

·  When refinancing a home, veterans may borrow up to 90% of reasonable value in order to refinance where state law allows.

Apply for a VA Loan with a VA Qualified Lender.

RHS Loan Programs:

The U.S. Department of Agriculture offers a variety of programs to help low to moderate-income individuals living in small towns or rural areas achieve homeownership. The Rural Housing Service (RHS) helps qualifying applicants, who cannot receive credit from other sources, purchase modestly priced homes as their primary residence.

RHS Loans are an attractive option because:

·         Minimal closing cost

·         Low or no down payment

RHS loans can be used toward the purchase and renovation of a previously owned home or a new construction. Families must be able to pay their monthly mortgage, homeowner's insurance and property taxes.

Find out if you qualify for an RHS Loan

Conventional Loans:

Conventional loans are mortgage loans offered by non-government sponsored lenders. These loan types include:

·  Fixed Rate Loans

·  Adjustable Rate Loans (ARMs)

·  Combination (Hybrid) Loans

·  Balloon Mortgages and Pledge Asset Loans

·  Jumbo / Construction Loans

·  Reverse Mortgage

Fixed Rate Mortgage:

With a fixed rate mortgage, the interest rate does not change for the term of the loan, so the monthly payment is always the same. Typically, the shorter the loan period, the more attractive the interest rate will be.

Payments on fixed-rate fully amortizing loans are calculated so that the loan is paid in full at the end of the term. In the early amortization period of the mortgage, a large percentage of the monthly payment pays the interest on the loan. As the mortgage is paid down, more of the monthly payment is applied toward the principal.

A 30 year fixed rate mortgage is the most popular type of loan when borrowers are able to lock into a low rate.

Benefits:

·  Lower monthly payments than a 15 year fixed rate mortgage

·  Interest rate does not go up if interest rates go up

·  Payment does not go up, it stays the same for 30 years

Drawbacks:

·  Higher interest rate than a 15 year fixed rate mortgage

·  Interest rate stays the same even if interest rates go down

A 15 year fixed rate mortgage allows you to pay off your loan quicker and lock into an attractive lower interest rate.

Benefits:

·  Lower interest rate

·  Build equity faster

·  If interest rates go up, yours is fixed

Drawbacks:

·  Higher mo Interest rate stays the same if interest rates go down

·  Interest rate stays the same even if interest rates go down

Adjustable Rate Mortgage (ARM):

An ARM is a mortgage with an interest rate that may vary over the term of the loan -- usually in response to changes in the prime rate or Treasury Bill rate. The purpose of the interest rate adjustment is primarily to bring the interest rate on the mortgage in line with market rates.

Mortgage holders are protected by a ceiling, or maximum interest rate, which can be reset annually. ARMs typically begin with more attractive rates than fixed rate mortgages -- compensating the borrower for the risk of future interest rate fluctuations.

Choosing an ARM is a good idea when:

·  Interest rates are going down

·  You intend to keep your home less than 5 years

ARMs have the following distinguishing features:

·  Index

·  Margin

·  Adjustment Frequency

·  Initial Interest Rate

·  Interest Rate Caps

·  Convertibility

Index

An adjustable rate mortgage's interest rate increases and decreases based on publicly published indexes. ARMS are based on different indexes including:

·  United States Treasury Bills (T-bills)

·  The 11th District Cost of Funds Index (COFI)

·  London Interbank Offering Rate Index (LIBOR)

·  Certificate of Deposit Indexes (CODI)

·  12-Month Treasury Average (MTA or MAT)

·  Cost of Savings Index (COSI)

·  Bank Prime Loan (Prime Rate)

Margin

Margin is a fixed percentage amount that is pointed added to the index - accounting for the profit the lender makes on the loan. Margins are fixed for the term of the loan.

interest rate = index + margin

Adjustment Frequency

Adjustment frequency reflects how often the interest rate changes - also known as the reset date. Most ARMs adjust yearly, but some ARMs adjust as often as once a month or as infrequently as every five years.

Initial Interest Rate

The initial interest rate is the interest rate paid until the first reset date. The initial interest rate determines your initial monthly payment, which the lender may use to qualify you for a loan. Often the initial interest rate is less than the sum of the current index plus margin so your interest rate and monthly payment will probably go up on the first reset date.

Interest Rate Caps

Interest rate caps put limits on interest rates and monthly payments.

Common caps:

Initial Adjustment Cap

An initial adjustment cap limits how much the interest rate can change at the first adjustment period.

Example:

If your ARM has a 1% initial adjustment cap, your interest rate may only increase or decrease by a maximum of 1% at the first adjustment period.

Periodic Adjustment Cap

A periodic adjustment cap limits how much your interest rate can change from one adjustment period to the next. Usually a six-month adjustable rate mortgage will have a one percent periodic adjustment cap while a one-year adjustable rate mortgage will have a two percent periodic adjustment cap.

Example:

If your loan has a 2% periodic adjustment cap, your interest rate may only increase or decrease by a maximum of 2% per adjustment period.

Lifetime Cap

A lifetime cap sets the maximum and minimum interest rate that you may be charged for the life of the loan. Most ARMs have caps of 5% or 6% above the initial interest rate.

Example:

If your loan has a 6% lifetime cap, your interest rate may only increase or decrease by a maximum of 6% for the life of the loan.

Initial adjustment caps, periodic adjustment caps, and lifetime caps make up an adjustable rate mortgage's cap structure, and are usually represented as three numbers:

Example:

1/2/6 -- Initial adjustment cap is 1 %/ periodic cap is 2% / lifetime cap is 6%.

Negatively Amortizing Loans

Because Negatively Amortizing Loans provide payments caps instead of interest rate caps, they limit the amount the monthly payment can increase. However, there is a risk interest rates could potentially escalate to a point where the monthly payment would not cover the interest being charged. If this scenario were to occur, the extra interest charges would be added to the principle of the loan, resulting in the borrower owing more than was initially borrowed. Borrowers are usually allowed to make payments over the loan amount to pay down the mortgage and guard against this scenario.

There are certain times when having a negatively amortizing mortgage could be beneficial. If a borrower were to lose a job or have an unexpected financial emergency a negative amortization option could ease cash flow situation. However, this should only be used as a short-term solution.

Option ARM loans

Option ARM loans allow the borrower to choose the amount to pay toward the mortgage each month. Make a minimum payment, interest-only payment, 30-year amortized payment or 15-year amortized payment. Pay the minimum amount to free up funds for other uses, or make larger payments for faster equity build up. Option Arms offer much more cash flow flexibility but must be used wisely by the borrower. Always consult a qualified loan officer to learn about all of the risks associated with these types of loans. He or she will also be able to offer valuable advice on properly managing your monthly payments.

Jumbo Loans:

Jumbo Loans exceed the maximum loan amounts established by Fannie Mae and Freddie Mac conventional loan limits. Rates on jumbo loans are typically higher than conforming loans. Jumbo Loans are typically used to buy more expensive homes and high-end custom construction homes.

Conforming Loans:

Conforming loans are conventional loans that meet bank-funding criteria set by Fannie Mae (FNMA) and Freddie Mac (FHLMC). Both of these stock-holding companies buy mortgage loans from lending institutions and secure them for resale to the investment community. Every year, form October to October, Fannie Mae and Freddie Mac establish limits on what constitutes a conforming loan in a mean home price.

Buying back mortgage loans allow these agencies to provide a continuous flow of affordable funding to banks that reinvest their money back into more mortgage loans. Fannie Mae and Freddie Mac only buy loans that are conforming, to repackage into the secondary market - effectively decreasing the demand for non-conforming loans.

Conforming Loan Limits:

NOTE: The conforming loan limit in Alaska, Hawaii, Guam and the Virgin Islands is 50% higher