Mortgage Loan
Program Types
As a general rule, lenders are free to create as many loan types as they can
imagine. Here are a few categories of mortgages. Most of the existing and new
loans fall under one of these categories. Since space is
limited in the tables, some words are abbreviated. Selected
definitions are available at the bottom of the page.
Government Mortgage Loans
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FHA
|
FHA or Federal Housing Administration loans. These loans
exist for the sole purpose of "housing America." The government has long
understood the benefits of people owning their own homes and has tried to make
it easier for them to finance it. These are not score driven so they are a
great option for individuals with newly established credit. FHA loans are very strict about
property condition. There are also specific terms and requirements when
borrowing money through the FHA program. |
VA
|
VA or Veterants Administration/Veterans Affairs loans.
Again, these are government loans for "housing America." These loans are
available only to veterans and their dependants. |
Non-Government Mortgage Loans
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Conventional
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Conventional mortgages are available through private industry.
Most primary and secondary lenders offer these loan types. Conventional mortgage loans
are not as strict about property condition. Some conventional mortgage examples are: fixed rate
mortgage, adjustable rate mortgage, wraparound mortgages, and purchase money mortgages.
See Josh's real estate glossary
for explanation of these specific mortgage types. |
Sub-Prime
|
Sub-Prime loans are commonly available to people who don’t
qualify for conventional mortgage loans. Although the rate is usually higher,
there is usually no PMI charged.
For this reason, sub-prime mortgages may be almost competetive with other types
of financing. Borrowers who do not qualify for conventional financing should compare
the actual monthly payment of a sub-prime mortgage. |
Hard Money
|
Hard money loans are for those who otherwise could not
qualify based on their own credit worthiness or based on the property
condition. Investors often use hard money
loans in the short term to renovate or
develop property. Terms are usually not as favorable, but they are often used
to the investor’s advantage. Hard money is usually loaned by private
individuals who are willing to take on risk. Sometimes they charge an interest
rate (for example 20-24 percent) and other times hard money loans require a percentage of
the profit attained. |
Here are some specifics about some of the financing options. Since loan programs
change from time to time, you are advised to speak with your lender about current
terms and options available.
Loan Programs Key Features
|
| |
FHA
|
VA
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Conventional
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Sub-Prime
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Hard Money
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MIP/PMI
|
Up Front & Monthly |
N/A
|
Monthly
|
N/A
|
N/A
|
FICO Score
|
N/A
|
|
600 plus
|
Varies
|
Varies
|
LTVR
|
97-100
|
100
|
95-100
|
Varies
|
100 plus
|
Terms
|
Good
|
Good
|
Good
|
Fair
|
Varies
|
Investment
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Rare
|
N/A
|
Yes
|
Yes
|
Yes
|
Limit
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By County
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$240,000
|
$326,000
Larger is "Jumbo"
|
Varies
|
Varies
|
Prepay Penalty
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No
|
No
|
Sometimes
|
2-3 years
|
Varies
|
Definitions
MIP/PMI
Mortgage Insurance Premium and Private Mortgage Insurance. If applicable, MIP or
PMI is
paid at the beginning of the loan, monthly, or both. Conventional mortgages
usually require monthly PMI. FHA mortgages usually require both up front and
monthly MIP. MIP and PMI are different names for the same concept.
FICO Score
LTVR
LTVR is Loan to Value Ratio. This indicates how much of your new property can be
financed. LTVR is expressed as the percentage of total property value.
Please note: FHA has considered offering 100 percent mortgage financing. For now this is
available through down payment assistance and community grant programs and sometimes results in a higher
purchase price. Contact Josh for details on free money for your home purchase.
Hard Money loans are sometimes available over 100 percent because they are
often used for rehabilitation and property development. The financed amount is borrowed
in anticipation of improved value.
Terms
This refers to the charges you will pay both up front and ongoing as well as rules
and restrictions.
Investment
This refers to whether these are viable options for investors who will not live
in the property. Government programs are often more lenient toward owner occupant
purchases. For instance in the case of a single family residence or a
duplex where the owner occupies half.
Jumbo Loan
This is a conventional loan larger than $326,000. This usually adds about 1/4
percent to the interest rate.