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Conventional mortgages are those which are not insured by the FHA/VA and thus not subject to their rules and regulations. These loans are offered by banks, savings and loans, credit unions, and mortgage bankers. Although these lenders also offer reduced down payment programs, the insurance for these loans is offered by private sector insurance companies, hence the name private mortgage insurance (PMI). PMI is usually required if the down payment on the home is less than 20%.
FHA/ VA Programs
One way of dividing the world of mortgage programs is by distinguishing between those loans insured by the Federal Government and those that are not. Those loans that are so insured are guaranteed by either the Federal Housing Agency (FHA) or the Veterans Administration (VA) and are known by those abbreviations. The idea behind these government programs is to promote the social goal of broad home ownership.
Their primary benefit is the borrower’s ability to buy a home with very little down payment. Being able to afford the down payment and closing costs is a major obstacle to home ownership for most first time home buyers. Statistically speaking, the smaller the down payment for a home, the higher is the chance the borrower may run into financial difficulty and be unable to make payments on the loan. FHA and VA insurance insures the lender against any loss which may arise if the borrower is unable to make payments on the loan.
Many states and municipalities also have special programs which promote home ownership for its citizens. Your loan officer can tell you what is available in your community.
Stated Income Program - Program Currently Suspended
Are you self employed? We have "stated income" loan programs where you simply state the income you make. No verification is done and interest rates are very competitive. These types of loans are particularly useful for the following borrowers:
- Self Employed
- Hard to Qualify
- Can't Show Income
- Prefers Not to Show Income
- 1st Time Home Buyer
Another basic division is between fixed rate and adjustable-ratemortgages. A fixed rate mortgage is one in which the interest rate and payment remain constant throughout the term of the loan. Fixed rate loans are fully amortized, meaning that the fixed monthly payments will completely pay off the debt (both principle and interest) over the term of the loan. Fixed rate mortgages are generally available with 30 year or 15 year terms.
Unlike fixed rate mortgages, Adjustable Rate Mortgages (ARM’s) can change at regular intervals (called "adjustment periods") according to changes in prevailing interest rates.
All ARM’s have the following characteristics: the "start rate" is the initial interest rate on the loan. A "life cap" is the maximum interest rate for the life of the loan and is often set at a certain percentage over the start rate. During the life of the loan, the interest rate will be a combination of the particularindex for that loan program which will change over the life of the loan and a constant margin which will remain the same over the life of the loan.
The interest rate on the ARM will adjust to changes in the index according to a schedule which is known as the adjustment period. The adjustment period could be as short as a month or as long as a year depending on the program and the index used. Each time the interest rate changes, the monthly payment is re-calculated so as to pay off the loan during the term remaining.