LOAN TYPES
We know that all the different loan programs that are available may be overwhelming. This section describes each type of loan to help you decide which loan fits your specific needs.
Conventional Loans
A conventional loan is a loan that is not insured by the Federal Housing Administration or guaranteed by the Veterans Administration or Farmers Home Administration.
FHA/VA Loans
These type of loans are insured by either the Federal Housing Administration or guaranteed by the VA. Low down payments or no down payments are typically required by the type of mortgage with loan limits varying per county in Ohio. FHA is typically tagged 'First Time Homebuyer Program' due to the nature of the flexible underwritting guidelines by given lenders.
Sub-Prime Loans
A Sub-Prime Loan is a type of mortgage that allows a customer with a 'damaged' credit history, low credit scores, or a high debt/ratio to obtain a mortgage. Minimum loan amount is $50,000 and the maximum in Ohio is $400,000. These loans are not insured by a government agency but are a higher risk to the investor due to the nature of the loan.
Conforming Loan
A conforming loan is a first lien mortgage with a loan amount no greater than $417,000 for a single-family residence. This maximum loan amount is typically adjusted annually by Fannie Mae and Freddie Mac.
Jumbo Loan
A jumbo loan is a first lien mortgage that exceeds the maximum conforming loan limit of $417,000 and above.
Fixed Rate Loans
A fixed rate mortgage provides you with a stable interest rate and payment that will not change over the life of the loan.
Consider a fixed rate loan when:
An adjustable rate mortgage typically begins with an interest rate that is 2 to 3 percent below the comparable fixed rate mortgage and the rate is adjusted at set intervals. The adjustment is determined by the index associated with the type of ARM. As the index fluctuates so does the interest rate. The indices can be referenced in the Wall Street Journal. Some common indices are described below: A One-Year T-Bill, which is the interest rate earned on treasury notes issued by the U.S. government with a maturity date of one year. The interest rate varies, according to market conditions. Cost-of-Funds Index (COFI), which tends to be more stable than the One-Year T-Bill rate. The margin is the amount, say 2.5 to 3.0 percent, which is added to the index at the time of adjustment.
Consider an ARM loan when:
A buydown mortgage is a fixed rate loan that requires you or the property seller to pay additional points at closing in exchange for a lower interest rate for the first one or two years. Typically, the rate drops two percent the first year, one percent the second year, then goes back up to the full interest rate. For example if you have a buydown fixed-rate loan at 8 percent, additional points are paid up-front. The first year you are only charged 6 percent, the second year you would be charged 7 percent, and the third and subsequent years you would be charged 8 percent.
Consider a buydown when:
We know that all the different loan programs that are available may be overwhelming. This section describes each type of loan to help you decide which loan fits your specific needs.
Conventional Loans
A conventional loan is a loan that is not insured by the Federal Housing Administration or guaranteed by the Veterans Administration or Farmers Home Administration.
FHA/VA Loans
These type of loans are insured by either the Federal Housing Administration or guaranteed by the VA. Low down payments or no down payments are typically required by the type of mortgage with loan limits varying per county in Ohio. FHA is typically tagged 'First Time Homebuyer Program' due to the nature of the flexible underwritting guidelines by given lenders.
Sub-Prime Loans
A Sub-Prime Loan is a type of mortgage that allows a customer with a 'damaged' credit history, low credit scores, or a high debt/ratio to obtain a mortgage. Minimum loan amount is $50,000 and the maximum in Ohio is $400,000. These loans are not insured by a government agency but are a higher risk to the investor due to the nature of the loan.
Conforming Loan
A conforming loan is a first lien mortgage with a loan amount no greater than $417,000 for a single-family residence. This maximum loan amount is typically adjusted annually by Fannie Mae and Freddie Mac.
Jumbo Loan
A jumbo loan is a first lien mortgage that exceeds the maximum conforming loan limit of $417,000 and above.
Fixed Rate Loans
A fixed rate mortgage provides you with a stable interest rate and payment that will not change over the life of the loan.
Consider a fixed rate loan when:
- Interest rates are low
- You plan to stay in the house for more than 10 years
- You want stable monthly payments
- You're on a fixed income
An adjustable rate mortgage typically begins with an interest rate that is 2 to 3 percent below the comparable fixed rate mortgage and the rate is adjusted at set intervals. The adjustment is determined by the index associated with the type of ARM. As the index fluctuates so does the interest rate. The indices can be referenced in the Wall Street Journal. Some common indices are described below: A One-Year T-Bill, which is the interest rate earned on treasury notes issued by the U.S. government with a maturity date of one year. The interest rate varies, according to market conditions. Cost-of-Funds Index (COFI), which tends to be more stable than the One-Year T-Bill rate. The margin is the amount, say 2.5 to 3.0 percent, which is added to the index at the time of adjustment.
Consider an ARM loan when:
- Fixed interest rates are high
- You only plan to keep the loan for a short while
- You only plan to stay in your home for a short while
A buydown mortgage is a fixed rate loan that requires you or the property seller to pay additional points at closing in exchange for a lower interest rate for the first one or two years. Typically, the rate drops two percent the first year, one percent the second year, then goes back up to the full interest rate. For example if you have a buydown fixed-rate loan at 8 percent, additional points are paid up-front. The first year you are only charged 6 percent, the second year you would be charged 7 percent, and the third and subsequent years you would be charged 8 percent.
Consider a buydown when:
- Fixed-rate interest rates are low, but you cannot qualify for a loan
- The seller is paying the closing costs
- You expect your income to significantly increase in the next year or two
