Buyer's Guide
Lansing Area Real Estate

Various Kinds of Mortgage Loans
There are numerous mortgage loan programs, these are the most common

There are mortgage loans designed to meet the needs of just about anyone. A good mortgage broker will help you to decide on a loan that fits both your current financial situation and your future plans.

Fixed-rate mortgages
A fixed-rate mortgage carries the same interest rate for the life of the loan. Fixed-rate mortgages are the most popular choice among homeowners. This is because the fixed monthly payment is easy to plan and budget for and can help protect against inflation. Fixed-rate mortgages are most common in 30-year and 15-year terms. 

Adjustable-rate mortgages (ARM)
Adjustable-rate mortgages differ from fixed-rate mortgages in that the interest rate and monthly payment can change over the life of the loan. This is because the interest rate for an ARM is tied to an index (such as Treasury Securities) that will rise or fall over time. To protect against dramatic increases in the rate, ARM loans usually have caps that limit the rate from rising above a certain amount between adjustments, as well as a ceiling on how much the rate can go up during the life of the loan. Because of their low introductory rates, ARM loans have become the most widely accepted alternative to fixed-rate mortgages.

Non-conforming Loans  
These are loans for people with special circumstances which don't conform to the general "borrower" profile. Special circumstances may include borrowers who are self employed, have variable incomes, beginning a new career, low credit scores, recently bankrupt, or new to this country. These loans often carry a higher interest rate to adjust for the risk the lender is assuming.    

Hybrid loans
Hybrid loans combine features of both fixed-rate and adjustable-rate mortgages. Typically, a hybrid loan may start with a fixed-rate for a certain length of time, and then later convert to an adjustable-rate mortgage.  

No doc or low-doc loan
No-documentation or low-documentation loans are designed for the entrepreneur or self-employed, recent immigrants with money in foreign countries or for borrowers who cannot, or choose not to, reveal information about their incomes. These loans require no documents, such as tax returns, W2 forms or paychecks, or bank statements. Only assets required for the down payment and closing costs are verified. These loans have a higher interest rate than the conventional rate.

To qualify for this type of loan a borrower must be self-employed for at least two years, have a down payment of from 20 percent to 35 percent, and an excellent credit history.  

Sub-prime B-C-D loans
These are the loans for people with past or current credit problems. The lenders are more lenient about your credit history, but they also charge higher rates and fees. Still, this is a way for people with credit problems to get into a house and, at the same time, boost their credit standing.

Jumbo mortgage
This is considered a nonconforming loan, because it exceeds the loan limit set by Fannie Mae and Freddie Mac, the two publicly chartered corporations that buy mortgage loans from lenders. The 2001 single-family loan limit is $275,000. If you need to borrow more than that, you will need a jumbo mortgage, which generally has a higher interest rate than "conforming" loans. 

Conventional loans

A conventional loan is simply a loan offered by a traditional private lender. They may be fixed rate, adjustable, hybrid or other types. While conventional loans may be harder to qualify for than government-backed loans, they often require less paperwork and typically do not have a maximum allowable amount.    

80/20 Mortgage
This type of loan is used by homebuyers who have excellent credit, wish to make no down payment and want to save the cost of making PMI (private mortgage insurance) payments.
The first mortgage is for 80% of the sales price, and a second mortage is for the 20% down payment. The second mortgage is at a higher interest rate and will be paid off in a shorter period of time.

FHA and VA loans
The Federal Housing Authority (FHA) and Department of Veterans Affairs (VA) offer loans designed to promote home ownership for people who might not otherwise be able to qualify for a conventional loan. Both FHA and VA loans have lower qualifying ratios than conventional loans, and often require smaller down payments.

The U.S. Government does not issue FHA and VA loans. The loans are made by private lenders and are insured by the U.S. government in case the borrower defaults. Any U.S. citizen may apply for an FHA loan. VA loans are only available to veterans or their spouses and certain government employees.


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