Loan Programs

Determined by the loan's interest rate, most loans are divided into two classes:

1. Adjustable Rate Mortgages
2. Fixed Rate Mortgages

Adjustable Rate Mortgages (ARM) are mortgages with an interest rate that fluctuates. Sometimes this isn't a bad idea as the initial rate may be significantly lower yet progresses to a higher rate throughout the course of a loan. If you are not planning to occupy a home for an exceptionally long period of time, this may be a good choice.

ARMs are typically accompanied by caps which provide a ceiling for the interest rate and a ceiling for the max. payment amount. Normally, the rate of an ARM is determined by calculating the index rate plus a margin, which is a percentage that the lender adds on.

Fixed Rate Mortgages traditionally include a number of products, but some of these products can have an ARM option, depending on who your lender may be.

Assumable Mortgage - If the seller already has a mortgage, sometimes the mortgage can be taken over by the purchaser. That's an assumable mortgage.

Community Home Buyers Program - Usually this is a government or assitance program provided to borrowers who meet a specific criteria. This criteria can differ from program to program.

Conventional - Traditionally, this is the old 20% down, 80% financed. But now, lenders offer a variety of programs with less down payment, though the loan is still classified as conventional.

Equity Mortgage - More commonly known as second or third mortgages, these products allow a home owner to cash in on the equity available on the home. For instance, if you own a home that is worth $200,000, but you only owe $150,000 through your current lender, a second mortgage could provide you with $50,000. Most equity mortgages possess a higher interest rate than the primary mortgage.

FHA - Developed by the Federal governement to help make home ownership easier for families. FHA Loans have become quite popular. They require lower down payments than conventional loans and allow familes to pull resources to acquire the down payment. There is a cap on the amount of funds that can be borrowed on an FHA loan. However, this cap is usually higher than most families can qualify. The cap differs from area to area, so check with your mortgage representative or Realtor to find out the cap in your area.

Jumbo Loan - This is a conventional loan whose amount exceeds the recommended cap put in place by Fannie Mae and Freddie Mac.

Land Contract - No bank is involved on a land contract, typically. In fact, the purchaser makes financing arrangements through the seller. In short relative terms - the seller holds the deed on the property, the purchaser makes monthly payments to the seller - when the amount is paid in full, the deed is handed over to the purchaser. Typically, you do not find many land contracts in a "buyer's market" because buyers are obviously much more prominent in such a market, and most sellers choose not to provide financial support to a buyer when a lender will typically provide such support to another buyer.

VA - A governmental loan program design to assist veterans with owning a home. Typically, there is not down payment and the interest rate is fairly competitive. Just one of the perks for serving your country.

That's it! If you've made it this far, you should have a fairly firm understanding of the mortgage process and are way ahead of the game in purchasing your home. Feel free to check out the additional resources within the mortgage center to help further you knowledge of the mortgage and lending process. Good luck with your mortgage!!!

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