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The United States mortgage
financing industry is highly competitive and creative. Lenders
have developed a
myriad
of financing options to meet the specific needs of
virtually all potential borrowers. This section attempts to
outline some of the common types of loan programs, and issues to
consider, when selecting the most appropriate loan to meet your
needs. However, your best bet is to talk with a The
First King Team and their loan officers first.
Rate Environment: The level
and direction of rates plays an important role in determining
between various loan programs
Risk Tolerance: Your own
comfort level with risk, including the absolute amount of debt
you incur, as well as the uncertainty of future rate
fluctuations, is another important factor to weigh
Time Horizon: Your expected
time horizon, including how long you plan to own your home and
potential changes in your financial situation, are also
important factors to consider
We encourage you to work with
us first to analyze your financing needs and
compare different mortgage programs to find the right one for you.
Conforming Loans
These are loans that are available up to a
maximum amount of $ 417,000
for a one-unit property. Conforming loans meet all of the
requirements to be eligible for purchase by federally-chartered,
private mortgage companies such as Fannie Mae (Federal National
Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage
Corporation). These secondary loan market companies help
facilitate the availability of home loans by investing throughout
the country. These loans are underwritten using standardized
underwriting guidelines. You can choose between either fixed or
adjustable rate programs, with payment payback periods of 5, 10,15,
20, 25 or 30 years. Down-payment requirements can be as little as
3%. Some programs allow for no down-payment (100% financing).
Jumbo Loans
Loan amounts over $ 417,000
are also known as non-conforming loans. These loans exceed the
loan amounts allowed by Fannie Mae (Federal National Mortgage
Association) and Freddie Mac (Federal Home Loan Mortgage
Corporation).
$417,000 Conforming Loan Amount at 5.75% on a 30 year fixed =
$2433.50 (Principle and Interest)
$417,000 Non Conforming Loan Amount at 6.125% on a 30 year
fixed = $2533.74 (Principle and Interest)
*The interest rates above are based at PAR pricing on a
California Rate Sheet from a major financial institution. The rate
is not taking closing costs and/or origination points into
consideration.
Down-payment requirements can be as little
as 5% up to a loan amount of $350,000 and 10% for loans up to
$650,000.
There are literally thousands
of different loan types available. We have assembled over 200 of
the best loan programs to choose from. Here is a sampling of some
of our popular products:
-
Fixed Rate Loans
-
Adjustable-Rate Loans (ARMs)
-
Blended Loans
-
Government Loans (FHA, VA, State Loan Programs)
-
No Income/No Asset Verification Loans
Fixed Rate Loans
These are loans that maintain the same rate
throughout the period of the mortgage. The terms that are
currently available are 10, 15, 20, 25, and 30 years. The monthly
payment will remain the same for the length of the loan. The last
payment that is made will fully amortize (pay-off) the loan.
Adjustable Rate Loans (ARM's)
These are loans that have a rate which can
adjust throughout the course of the loan's repayment, depending
upon the movement of a specified Index. One example of a commonly
use index is the one-year Treasury Bill. ARM programs may
initially offer a lower interest rate than a fixed-rate mortgage.
This makes them attractive to people who, by taking the lower
initial interest rate, qualify for a larger mortgage. People who
may benefit by choosing an ARM program are people planning on
moving or refinancing within the first 5 years, people with a high
probability of increasing their income, and people who need a low
initial interest rate in order to qualify for their mortgage.
Before applying for an ARM, be sure to ask about
the interest rate caps. Arms typically have 2 'caps', or limits,
on how high or low the interest rate can adjust which also effects
how high or low the mortgage payment adjusts. One cap sets the
most that your interest rate can go up or down during each
adjustment period. The other cap sets the most your interest rate
can go up or down during the entire life of the loan. Caps of 2%
per adjustment and 6% over the life of the loan are extremely
common. For example, if your loan starts at 5%, and the
per-adjustment cap is 2%, your interest rate for that adjustment
period cannot go higher than 7%. You also know that the interest
rate cannot go higher than 11% over the life of the loan. You need
to take into consideration what your comfort level would be if you
were to have to make a mortgage payment at the highest adjustment
sometime in the future.
There are several types of ARM
products available including a Standard ARM, balloons, negative
amortization loans, and buy-downs.
Standard ARM: Available with
initial rates that are fixed for 1, 3, 5, 7, or 10 years. When
the initial rate period is up, the loan will adjust based on a
formula that varies from program to program. The rate caps are
typically 2% per adjustment and 6% over the life of the loan.
Balloon: These are available
with initial rates that are locked for 5 or 7 years. Whatever
the remaining amount that is left on the loan is due in full
at the end of the rate period. The Massachusetts Attorney
General had outlawed these programs in Massachusetts for
several years because of the high incidence of complaints and
foreclosures. These loans should be carefully scrutinized,
preferably with legal counsel, before choosing a balloon over
another type of loan.
Negative Amortization Loans:
These loans do not payoff the principal or the full amount of
interest that is due. Negative amortization is a loan payment
schedule in which the outstanding principal balance goes up
rather than down. This loan allows for the lowest possible
payment that you can make. These loans should be carefully
scrutinized, preferably with legal counsel, to make sure that
you understand the pitfalls of a negative amortization loan.
Buy-downs: This program is
based on a standard ARM program, but allows for reduced
interest payments for the first couple of years. The reduced
interest lowers the mortgage payment and may allow someone to
qualify for a loan that they otherwise would not have
qualified for at the higher rate. The borrower is responsible
for paying the difference between the below-market rate of the
loan and the initial rate. This can be done with either a
lump-sum in escrow, or by paying the required points on the
loan.
Blended Loans
These are loans that blend a first and a second
mortgage together. This is often done for several reasons,
including avoiding private mortgage insurance, avoiding a jumbo
interest rate, or to allow for a future additional pay-down of a
mortgage (bonus, inheritance, investment sale, etc.).
Government Loans
FHA
These are federally insured loans that offer
very flexible underwriting criteria. The maximum loan amounts vary
by county. Ask your mortgage consultant for limits in your
purchasing area.
Loan Highlights Particularly
Appealing For First-Time Homebuyers:
Low down-payment (usually 3%
of the FHA appraised value or the purchase price, whichever is
less)
No maximum income/earning
limitations
FHA insures the loan, at a
lower rate than standard private mortgage insurance, for an
insurance fee referred to as Up-Front Mortgage Insurance (UFMIP).
UFMIP can be paid in full at the loan closing or financed and
added to the loan amount.
Fixed rate and ARM loans
available
There is no prepayment penalty
on FHA loans
Easier qualification
requirements
VA
These are federally insured loans that are
available to individuals who have served or are currently serving
in the armed forces. Qualified veterans can get a loan of up to
$203,000. For eligibility information, contact us.
Loan Highlights:
No Income/No Asset
Verification Loans
These loans allow a customer to receive a
mortgage without verifying their income. Because the income is not
verified on these loans, there is more emphasis placed on the
credit history and the appraisal of the subject property. There
are several different variations including:
-
Stated Income: The income is
stated but not verified. The employment history is usually
verified with a letter from an accountant or a copy of a
business license.
-
No Income/No assets: Neither
the income nor any assets are stated on the application. This
is commonly referred to as a 'no-doc' loan. You must have a
superior credit history in order to be considered for this
loan.
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