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Understanding
Mortgage Options
(As you read this, keep
in mind that the mortgage industry is changing every day and many
mortgage companies are expanding their financing options. Therefore,
understand that these are general guidelines and feel free to ask your
mortgage broker/lender if any new guidelines apply.)
Mortgage Programs
Conventional
Fixed
ARM
Conventional Mortgage Program (also known as Conforming)
A conventional mortgage is a loan that is long term (typically 30 or
15 years) and meets the guidelines as put forth by FNMA (Federal
National Mortgage Association) and FHLMC (Federal Home Loan Mortgage
Corp.). These guidelines include satisfactory types of borrowers,
kinds of property, and loan amounts up to $333,700 ($500,550 in Alaska
and Hawaii).
Mortgage Insurance (MI) is required on a conventional loan if the
loan-to-value is more than 80%. For example, if a borrower purchases a
home for $200,000 and applies for a loan of $180,000 (90%
loan-to-value), he or she will be required to pay mortgage insurance
to obtain the loan. Mortgage insurance is typically paid on a monthly
basis.
A conventional mortgage is generally non-assumable and does not have a
pre-payment penalty.
Jumbo Mortgage Program (also known as Non-Conforming)
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A jumbo mortgage consists of the same features as a conventional
mortgage (see definition above), however the loan amount exceeds the
loan limit set by FNMA and FHLMC.
Fixed Rate Jumbo Mortgages
One type of jumbo mortgage is a fixed rate mortgage. The
characteristics of a jumbo fixed rate mortgage are the same as a
conventional mortgage. Depending on the loan amount however, certain
loan-to-value restrictions may apply. Consult a qualified loan officer
for details.
Adjustable Rate Jumbo Mortgages
Jumbo mortgages can have adjustable rates also. The features of a
jumbo adjustable rate mortgage (ARM) are similar to those of a
conventional mortgage. Depending on the loan amount however, certain
loan-to-value restrictions may apply. Consult a qualified loan officer
for details.
Balloon Jumbo Mortgages
Balloon jumbo mortgages are another option for a borrower. The
guidelines for this type of jumbo mortgage vary depending on
lender/broker. Consult a qualified loan officer for details regarding
this type of loan.
FHA Mortgage Program (a type of Government-Guaranteed mortgage)
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A FHA mortgage is obtained through a local lender/broker, however the
Federal Government guarantees these mortgages through the Department
of Housing and Urban Development (HUD).
A borrower might choose a FHA mortgage because it allows for greater
flexibility in income, credit, and down payment requirements. A loan
that might not be approved as a conventional loan might be approved as
a FHA loan.
All FHA loans require Mortgage Insurance (MI). An up front premium of
1.50% of the loan amount is required and is typically added to the
loan amount. A FHA loan also requires a monthly MI premium of .5%. In
comparison, a conventional mortgage only requires a monthly MI premium
if the loan-to-value is over 80%.
FHA loans are only available with fixed rates or 1 year adjustable
rates. FHA loans also have a maximum loan amount that varies according
to the property location.
A qualified loan officer can advise a borrower if he or she should
consider a FHA mortgage.
VA Mortgage Program (a type of Government-Guaranteed mortgage)
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A VA mortgage can be obtained through a local lender/broker, and
similar to a FHA mortgage, it is guaranteed by a government agency,
the Veterans Administration.
Unlike any other mortgage programs described, only eligible veterans
that have served in the armed forces (as defined by VA) can obtain a
VA loan.
One feature of a VA loan is the ability of an eligible veteran to
finance up to 100% of the purchase price of a property. The veteran
can also add the VA funding fee to the purchase price, thus lowering
the amount of cash the borrower needs to purchase a home. The VA
funding fee is a fee charged by the Veterans Administration to insure
the payment of the mortgage. The funding fee is usually 2.75% of the
purchase price, but varies depending on the amount of times the
veteran has previously purchased a home using the VA mortgage program.
VA loans have a maximum loan amount that as of January 2000 could not
exceed $203,000.
All veteran borrowers should consider this mortgage program when
reviewing their borrowing options. Regional VA offices can answer any
questions regarding a veteran's eligibility status.
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