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Conventional loans are secured by government sponsored entities such as Fannie Mae
and Freddie Mac. Conventional loans can be made to purchase or refinance homes
with first and second mortgages on single family to four family homes.
In general, Fannie Mae and Freddie Mac's single family, first mortgage loan limit is
$417,000 in 2008. This limit is reviewed annually and, if needed, changed to reflect
changes in the national average price for single family homes. The current loan limit
applies to all conventional mortgages delivered after January 1, 2008.
2008 Conventional Loan Limits
• One-family loans: $417,000
• Two-family loans: $533,850
• Three-family loans: $645,300
• Four-family loans: $801,950
• Note: Maximum original loan amounts are 50 percent higher for first mortgages on
properties in Alaska, Hawaii, Guam and the U.S. Virgin Islands.
• $208,500 (in Alaska, Hawaii, and the US Virgin Islands: $312,750)
Loans which are larger than the Conventional loan limits set by Fannie Mae and
Freddie Mac are called Jumbo loans. Jumbo loans usually carry a higher interest rate
and some additional underwriting requirements because they are not funded by these
government sponsored entities.
A strategy to lower your overall interest payments if your purchase or refinance balance
is above $417,000 is to use a combination of both first and second trust money,
referred to as an 80/10/10, 80/15/5 or 80/20. Every situation is different, but it is one
more option to consider. Contact Us to discuss all your options.
Fixed Rate Mortgages
These are the most common and traditional type of mortgage program and are
available for amortization periods of 30 years, 20 years, 15 years and even 10 years.
Property taxes and homeowners insurance may increase, but generally your monthly
payments will be very stable.
Fixed rate fully amortizing loans have two distinct features. First, the interest rate
remains fixed for the life of the loan. Secondly, the payments remain level for the life of
the loan and are structured to repay the loan at the end of the loan term.
During the early amortization period, a large percentage of the monthly payment is used
for paying the interest. As the loan is paid down, more of the monthly payment is
applied to principal. A typical 30 year fixed rate mortgage takes 22.5 years of level
payments to pay half of the original loan amount.
Adjustable Rate Mortgages (ARMs)
These loans generally begin with a lower interest rate than a comparable fixed rate
mortgage, and could allow you to buy a more expensive home. However, the interest
rate changes at specified intervals (for example, every year) depending on changes in
interest rates. If interest rates go up, your monthly mortgage payment will go up.
However, if rates go down, your mortgage payment will drop also.
There are also mortgages that combine aspects of fixed and adjustable rate mortgages
- starting at a low fixed rate for seven to ten years, for example, and then adjusting
based on interest rates at that time.
Ask us about these and other special kinds of mortgages that fit your specific financial
Introductory Rate ARM's
Most ARMs have a low introductory rate or start rate. This start rate is usually good
from 1 month to as long as 10 years. As a rule the lower the start rate is the shorter the
time before the loan makes its first adjustment.
Home Equity Credit Line of Credit (HELOC)
A HELOC is line of credit extended to a homeowner that uses the borrower's home as
collateral. The homeowner may draw on the line of credit at his or her discretion.
Interest is charged on a predetermined variable rate, which is usually based on
prevailing prime rates.
Once there is a balance owing on the loan, the homeowner can choose the repayment
schedule as long as minimum interest payments are made monthly. The term of a
HELOC can last anywhere from less than five to more than 20 years, at the end of
which all balances must be paid in full.
2nd Mortgages are similar to a HELOC in that your home is used as collateral for the
loan but they differ in two important ways. First, 2nd mortgage money usually is loaned
in a lump sum, rather than in a series of advances as with a HELOC. Secondly, 2nd
mortgages usually have fixed interest rates and fixed payment amounts.
Some 2nd mortgage loans may extend for as long as 15 or 20 years while others may
require repayment in one year. You will need to discuss the repayment terms with us
and select one that offers terms that best suit your needs.
If you have bad credit or problems with your credit history then you most likely will not
qualify for a conventional loan or a low down payment loan offered by FHA and VA. If
this is the case then your only option may be a subprime loan. Because of the higher
risk associated with lending to borrowers that have a poor credit history, subprime loans
typically require a larger down payment and a higher interest rate. The higher the
lender perceives its risk to be, the higher the rate they will charge for the privilege of
borrowing their money. The lower the risk then the lower the rate..
Whether for a purchase or refinance, subprime loans should typically be used as a
short term solution, approximately 2-4 years. During that time, you can work to clean up
your credit and qualify for a refinance into a lower risk, lower rate loan.
If you think your credit history will require you to obtain a subprime loan then speak to
us. We can determine what you qualify for.
FHA's mortgage insurance programs encourage lenders to make loans to creditworthy
low and moderate income families and individuals that might not be able to meet
conventional underwriting requirements. FHA does this by lowering the cost of loans for
the borrowers and by insuring the lender against loan default on loans for properties
that meet certain requirements.
FHA loans have several important characteristics:
Down payment requirements can be low - FHA insurance allows borrowers to finance
approximately 97 percent of the value of their home purchase through their mortgage,
whereas conventional loans often require at least 10% down payment
Many closing costs can be financed – thus reducing the up front cost of buying a home.
Some fees are limited - FHA rules limit some of the fees that mortgage companies may
charge in making a loan.
Limits are set on the amount that may be insured - to make sure that its programs serve
low and moderate income people, FHA sets limits on the dollar value of the mortgage
A VA Loan is made to eligible veterans and regular active duty personnel by for profit
lenders such as mortgage companies and banks and are guaranteed by the
Department of Veterans Affairs. The VA protects the lender against loss up to the
amount guaranteed by the VA, allowing a veteran to obtain favorable financing terms.
VA loans are similar to FHA loans in that down payment requirements can be low and
that since a large portion of the mortgage loan is guaranteed by the VA, mortgage
lenders are more likely to offer lower interest rates and favorable terms on a VA Home
Contact us today to see if you qualify for a VA loan.
Balloon loans are essentially short term, fixed rate mortgages. They provide a level
payment during the term of the loan (for example, 5 to 7 years) but do not fully amortize
over the original term of the loan. At the end of the loan term there will still be a
principal balance remaining which must be repaid to the lender. Most often this is
accomplished by refinancing the property. However, many lenders have a conversion
option on Balloon mortgages that will convert the loan to a 30 year fixed rate loan at
prevailing market interest rates.
Interest Only Loans
Borrowers with Interest Only loans pay only the interest due on the principal loan
amount and pay no principal. They offer borrowers greater purchasing power since the
whole monthly payment is going to the interest due and not to paying down loan
principal. This type of loan program works well for borrowers planning to stay in their
homes only a few years since during the first couple of years with a conventional 30 yr
mortgage, most of your mortgage payment is being applied directly to the interest of the
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