Conforming and Non-Conforming Banks / PMI
Depending on a borrowers qualifications they can go to either a conforming (typical name brand local and national banks i.e.: Webster, First Union, Peoples Bank, etc.) or a non-conforming bank (Lending Institutions that normally have private investors). Interest rates are generally lower at a conforming bank, but have more guidelines, restrictions, and PMI for loans over 80% of the subject properties value. Interest rates are slightly higher at non-conforming banks, but they are more flexible on their conditions and they do not charge PMI.
PMI = Principle Mortgage Insurance. This is a policy the Conforming bank requires the borrower to purchase in the event the loan is over 80% of the subject properties value. The Insurance pays 20% of the loan to the bank in the event the loan is defaulted on.
Both conforming and non-conforming lending institutions have 80%/90%/100% loan programs (as well as in between). A borrowers credit will determine which lending institution they can qualify with. Interest rates are generally higher as the LTV increases.
Fixed-Rate Mortgage
When interest rates are low you want to lock into a fixed rate and take advantage of the long term benefits of paying lower interest. This is the best option if the future looks like interest rates will be on the rise.
Adjustable-Rate Mortgages
At the time of your initial finance, adjustable rate mortgages are initially lower than a fixed rate mortgage, but will increase over a few years. Adjustable rate mortgages are good if your immediate financial situation requires a lower payment or if your credit needs improvement and your looking to get yourself established in a mortgage. Once someone establishes a mortgage payment history, and if fixed interest rates have gone down, borrowers usually refinance into a fixed interest rate.
30-year/15-year/10-year
The shorter the term of the loan means the less interest a borrower pays over the term of the loan saving the borrower money. Borrowers should keep in mind that the shorter the loan term the higher the monthly mortgage payment.
Full Doc or Stated
Full documentation means the borrower is going to provide detailed employment, income, and financial information and it will be verified by the lending institution. Stated means the borrower is going to State their employment, income, and financial information and it is not verified by the bank. Borrowers generally need a higher credit score in order to qualify for most Stated programs. Interest rates are generally higher for Stated program, but it may be the program for you if you are self employed or want to obtain the house you desire.
Option ARMs (Adjustable Rate Mortgages)
The most popular ARM is a flexible financial tool that helps make your money work for you. Choose from four different payment options every month.
Traditional ARMs (Adjustable Rate Mortgages)
These loans begin with an interest rate that is lower than a comparable fixed rate mortgage, but the rate changes at specified intervals. Start with the stability of a fixed-rate mortgage then convert to the flexibility of an ARM. Choosing an ARM with an index that reacts quickly lets you take full advantage of falling interest rates. Most ARM's have a low introductory rate, which is good anywhere from 1 month to as long as 10 years.
Fixed-Rate Mortgages
The most common type of mortgage program where your monthly payments for interest and principal never change. Enjoy stable monthly payments.
Home Equity Loans and Home Equity Lines of Credit
A flexible and convenient way to tap the equity in your home.
Reverse Mortgages
A Special type of loan made to older homeowners to enable them to convert the equity in their home to cash to finance other needs.
Balloon Mortgages
Short term mortgages that have some features of a fixed rate mortgage.
Interest Rate Buy downs
The buyer would pay points above current market points in order to pay a below market interest rate during the first two years of the loan. At the end of the two years they would then pay the old market rate for the remaining term.
Cost of Funds Index (COFI)
The ratio of the dollar amount paid in interest during the month to the average dollar amount of the funds for that month constitutes the weighted average cost of funds ratio for that month.
Graduated Payment Method (GPM)
With a GPM the payments are usually fixed for one year at a time.
Choosing the best program and the right type of mortgage for you depends on many different factors.
Commercial Loans
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FHA 203K Rehabilitation or Renovation Mortgage Loan
aka EXTREME MAKEOVER TM HOME LOANS
This loan allows you to receive a single mortgage loan to finance not only the acquisition, but the rehabilitation or remodeling of your home as well.
FHA Rapid Direct TM
Allows you to take advantage of lower rates and lower monthly payments. It also enables you to switch from an ARM that is resetting to a fixed rate, or switch from a fixed rage to an ARM. You can even delete or add a borrower. |
