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Types of Mortgage Loans
Conventional loans - Conventional loans are those that are not
guaranteed by the government, as are FHA and VA loans. The primary
guidelines for these loans come from Freddie Mac and Fannie Mae, the
secondary mortgage market, where most loans are sold. This type of
loan usually has the most flexibility because of the huge range of
loan products offered, and most of the time the rate is slightly
lower than the government insured loans.
FHA loans - These loans are typically thought of as first time home
buyer loans, but actually they can be used by anyone who meets the
guidelines. They are usually more forgiving of low credit scores and
allow higher debt ratios. Because of this there is an up front
mortgage insurance premium (MIP) which is financed into the loan at
the start plus a monthly MIP which is equivalent to 1/2% of the
original loan amount divided by 12. One of the big advantages of an
FHA loan (unlike traditional conventional loans which require that a
certain percentage be the borrower's own funds) is that the down
payment can be a gift from a relative allowing a buyer into a
property who has little or no money to put down. Also on an FHA loan
the seller is obligated to pay certain fees for the buyer which on a
conventional loan the buyer would normally pay. One of the most
popular FHA loan programs is the 2-1 Buy Down. At a cost of 2.625%
of the loan amount (points) the buyer's first year payment is 2%
lower than the market rate at closing, the second year is 1% lower
than the market rate at closing, and years 3 through 30 are at the
market rate at closing. This allows the buyer to qualify at a lower
interest rate and purchase more house, based on the assumption that
his income will be going up in the years ahead.
VA loans - VA loans are available only to veterans who have VA
eligibility. In order to obtain a VA loan, the veteran must acquire
from the Veteran's Administration his Certificate of Eligibility or
DD-214. VA loans actually allow the highest debt ratios, 44% of all
debt combined, and the Veteran is able to literally get into a home
with $1 down because the seller is allowed to pay all of the
Veteran's closing costs. (Usually the sales price is adjusted to
cover the cost of the seller's contribution!) VA loans are also the
only kind of loan that may be legally "assumed" by another buyer on
a contract for sale without prior permission from the existing
lender. This should only be attempted with help from a competent
Realtor!!! The terms under which this type of assumption can be done
are extremely complicated. And until the new buyer either pays off
the existing loan or qualifies to assume it with the lender, the
veteran remains liable for the balance which is owed.
Low or no money down loans - There has been a proliferation of these
loan products in recent years designed to help both first time
buyers and those with no savings. Most are combined first and second
trust deeds totaling 100% of the purchase price. These loans are
looking for excellent credit and the interest rate on the second is
usually fairly high, between 3 to 4% above the first, but these can
be refinanced after a couple of years down to a better rate.
Non-profit organizations have also gotten into the mortgage business
in the last year. In return for a seller "contribution" of 4% of the
sales price, these groups "gift" the buyer with their 3% down
payment. Again the sales price is often adjusted to compensate for
the seller's contribution. The nice part about these loans is that
they are not limited to the lower price ranges but go all the way up
to Jumbo loans.
Stated Income Loans - Sometimes a buyer's income is not sufficient
to qualify for the type of loan he needs to get into the type of
home he wants. But his credit is great and perhaps he has other
sources of income which are not acceptable to the lender such as a
part-time job. A no-income qualifying loan puts him into the home he
wants. Depending on the buyer's credit scores and how much he is
putting down the interest rate is generally 1 to 2% above normal
market rate.
No asset verification loans - When a buyer is making his down
payment the lender normally has to track the funds, verifying that
they came from the buyer's own accounts. If the buyer is receiving
the down payment from other sources that are not "lender approved"
(trust funds, gift from someone other than a relative, etc) he may
have to choose a no asset verification loan. This loan type usually
carries a higher interest rate of 1 to 2% above market.
80/10/10 loans - When a buyer has 10% of the purchase price as his
down payment he has to pay the mortgage insurance premium as part of
his monthly payment. The mortgage insurance premium portion of this
payment is not tax deductible. Many times it makes more sense to
take out a 10% second mortgage. Since the first mortgage is now only
at 80% of the loan to value there is no mortgage insurance required.
Even though the interest rate is higher, the payment is usually less
than with the mortgage insurance and all of it is now tax
deductible. Also if the buyer does pay off the second mortgage he
does not even have to go through the process of petitioning to have
the mortgage insurance taken off. Sometimes the seller can even be
persuaded to carry this second mortgage. There are other variations
on this loan including an 80/15/5 (buyer puts down only 5%) and even
possibly an 80/20 (buyer puts down nothing).
First time home buyer loans (state money) - Periodically during each
year the State of Nevada will allocate funds to go towards mortgages
for first time homebuyers. This is called a state money loan and
typically will run 1/2 to 3/4% lower than the current market rate.
This allows a first time buyer to qualify for a better house than he
might otherwise be able to afford. There are certain restrictions
which apply to this loan including maximum income a buyer may have
and maximum sales price allowed. Once a property has been
identified, the buyer must then wait for approval of his fund
allocation. If the buyer ever moves out of the house it must either
be sold or the loan may be assumed by another buyer who must also
qualify under the state guidelines. (These properties may not be
turned into rental units.) Depending on how long a buyer has
occupied the home, upon sale he may be required to pay a percentage
of the proceeds on the home to the state.
Interest only mortgage loans -are a terrific way to keep your
mortgage payments lower during the first years of the loan and
enable you to buy more home for the money. There are a variety of
different interest only loan programs available, including variable
rate interest only loans that may adjust every six months. But with
economists predicting a rise in interest rates over the next few
years, the best program currently on the market is the 10 year fixed
rate interest only loan. The interest rate of this loan is fixed in
advance for all 30 years of the loan. The first 10 years of the loan
the payments are interest only. Principal and interest payments are
made for the remaining 20 years of the loan, and the principal
balance is amortized over the remaining 20 years.
Article by Diann E. Tonnesen, RealtorŪ
Las Vegas New Homes
Las Vegas High Rise
Las Vegas Golf Course Homes
Henderson Homes
This article is copy write protected and may only be reprinted with
permission of the author. Any use of this article without express
written permission of the author will be prosecuted to the fullest
extent allowed by law.
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