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Purchase Loan Types
The following loan type are available for purchase transactions:
Conforming (A-paper) Mortgage Non-conforming (Jumbo) Loan Sub-prime (B/C/D-paper) Mortgage FHA Mortgage VA Mortgage State and Local Housing Programs Fixed Rate Mortgage Adjustable Rate Mortgage (ARM) Fixed Period ARM Balloon Mortgage Deferred Interest Mortgage
Option ARM Loan Hybrid ARM Loan Amortizing Mortgage Interest Only Feature Home Equity Line of Credit (HELOC) Home Equity Loan (Closed-end Second Mortgage) Bridge Loan Lot Loan Construction Loan 100% Financing Reduced Documentation Loan
Conforming (A-paper) Mortgage
Conventional loans (any mortgage loan other than an FHA or VA loan is conventional loan) may be conforming or non-conforming. Conforming loans have terms and conditions that follow the guidelines set forth by Fannie Mae and Freddie Mac. These two stockholder-owned corporations purchase mortgage loans complying with the guidelines from mortgage lending institutions, packages the mortgages into securities and sell the securities to investors. By doing so, Fannie Mae and Freddie Mac, like Ginnie Mae, provide a continuous flow of affordable funds for home financing that result in the availability of mortgage credit for Americans. Fannie Mae and Freddie Mac guidelines establish the maximum loan amount, borrower credit and income requirements, down payment, and suitable properties. Fannie Mae and Freddie Mac announce new loan limits every year. The 2007 conforming loan limits for first mortgages remain at the limits set in 2006: One-family: $417,000 Two-family: $533,850 Three-family: $645,300 Four-family: $801,950 The maximum loan amounts in Alaska, Guam, Hawaii and the Virgin Islands are 50% higher than in the continental United States. Properties with five or more units are considered commercial properties and are handled under different rules. Return to top
Conventional loans (any mortgage loan other than an FHA or VA loan is conventional loan) may be conforming or non-conforming. Conforming loans have terms and conditions that follow the guidelines set forth by Fannie Mae and Freddie Mac. These two stockholder-owned corporations purchase mortgage loans complying with the guidelines from mortgage lending institutions, packages the mortgages into securities and sell the securities to investors. By doing so, Fannie Mae and Freddie Mac, like Ginnie Mae, provide a continuous flow of affordable funds for home financing that result in the availability of mortgage credit for Americans.
Fannie Mae and Freddie Mac guidelines establish the maximum loan amount, borrower credit and income requirements, down payment, and suitable properties. Fannie Mae and Freddie Mac announce new loan limits every year.
The 2007 conforming loan limits for first mortgages remain at the limits set in 2006:
The maximum loan amounts in Alaska, Guam, Hawaii and the Virgin Islands are 50% higher than in the continental United States. Properties with five or more units are considered commercial properties and are handled under different rules.
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Non-conforming (Jumbo) Loan
Loans above the maximum loan amount established by Fannie Mae and Freddie Mac are known as 'jumbo' loans. Because jumbo loans are bought and sold on a much smaller scale, they often have a slightly higher interest rate than conforming, but the spread between the two varies with the economy. Because non-conforming loans are not sold to Fannie Mae or Freddie Mac, individual lenders can and do make their own qualification guidelines (e.g. loan limits, LTV/CLTV thresholds, debt-to-income ratios, etc.). Return to top
Loans above the maximum loan amount established by Fannie Mae and Freddie Mac are known as 'jumbo' loans. Because jumbo loans are bought and sold on a much smaller scale, they often have a slightly higher interest rate than conforming, but the spread between the two varies with the economy. Because non-conforming loans are not sold to Fannie Mae or Freddie Mac, individual lenders can and do make their own qualification guidelines (e.g. loan limits, LTV/CLTV thresholds, debt-to-income ratios, etc.).
Sub-prime (B/C/D-paper) Mortgage
Loans that do not meet the borrower credit requirements of Fannie Mae and Freddie Mac are called 'B', 'C' and 'D' paper loans (aka non-prime or sub-prime) vs. 'A' paper conforming loans. B/C/D loans are offered to borrowers that may have recently filed for bankruptcy, foreclosure, or have had late payments on their credit reports. Their purpose is to offer temporary financing to these applicants until they can qualify for conforming 'A' paper financing. The interest rates are higher than their 'A' paper counterparts and vary, based upon many factors of the borrower's financial situation and credit history. Most B/C/D loans have a 1-3 year pre-payment penalty - however, these pre-payment penalties can be "bought-out" completely or partially by taking a slightly higher interest rate. Return to top
Loans that do not meet the borrower credit requirements of Fannie Mae and Freddie Mac are called 'B', 'C' and 'D' paper loans (aka non-prime or sub-prime) vs. 'A' paper conforming loans. B/C/D loans are offered to borrowers that may have recently filed for bankruptcy, foreclosure, or have had late payments on their credit reports. Their purpose is to offer temporary financing to these applicants until they can qualify for conforming 'A' paper financing. The interest rates are higher than their 'A' paper counterparts and vary, based upon many factors of the borrower's financial situation and credit history. Most B/C/D loans have a 1-3 year pre-payment penalty - however, these pre-payment penalties can be "bought-out" completely or partially by taking a slightly higher interest rate.
FHA Mortgage
The Federal Housing Administration (FHA), which is part of the U.S. Dept. of Housing and Urban Development (HUD), administers various mortgage loan programs. Though FHA loans cannot exceed statutory limits (which vary by county) and are not available with interest-only options, FHA loans have low interest rates and discounted mortgage insurance premiums. FHA loans have lower down payment requirements (3%) and are easier to qualify than conventional loans. Unlike conventional loans, the minimum 3% down-payments can be gifted, borrowed, or granted from a non-profit (such as Nehemiah), making it possible to get an FHA mortgage with $0 down. FHA loans are available in 30 & 15 year fixed, and 1, 3, & 5 year Fixed Period ARMs. Return to top
The Federal Housing Administration (FHA), which is part of the U.S. Dept. of Housing and Urban Development (HUD), administers various mortgage loan programs. Though FHA loans cannot exceed statutory limits (which vary by county) and are not available with interest-only options, FHA loans have low interest rates and discounted mortgage insurance premiums.
FHA loans have lower down payment requirements (3%) and are easier to qualify than conventional loans. Unlike conventional loans, the minimum 3% down-payments can be gifted, borrowed, or granted from a non-profit (such as Nehemiah), making it possible to get an FHA mortgage with $0 down. FHA loans are available in 30 & 15 year fixed, and 1, 3, & 5 year Fixed Period ARMs.
VA Mortgage
VA loans are guaranteed by U.S. Dept. of Veterans Affairs. The guaranty allows veterans and service persons to obtain home loans with favorable loan terms, usually without a down payment. In addition, it is easier to qualify for a VA loan than a conventional loan. The maximum VA loan is to $417,000. Though VA does not make loans, it guarantees loans made by lenders. VA determines your eligibility and, if you are qualified, VA will issue you a certificate of eligibility to be used in applying for a VA loan. Like FHA loans, VA loans and are easier to qualify than conventional loans and are not available with interest-only options. VA loans are available in 30 & 15 year fixed, and 3 year Fixed Period ARMs. Return to top
VA loans are guaranteed by U.S. Dept. of Veterans Affairs. The guaranty allows veterans and service persons to obtain home loans with favorable loan terms, usually without a down payment. In addition, it is easier to qualify for a VA loan than a conventional loan. The maximum VA loan is to $417,000. Though VA does not make loans, it guarantees loans made by lenders. VA determines your eligibility and, if you are qualified, VA will issue you a certificate of eligibility to be used in applying for a VA loan.
Like FHA loans, VA loans and are easier to qualify than conventional loans and are not available with interest-only options. VA loans are available in 30 & 15 year fixed, and 3 year Fixed Period ARMs.
State and Local Housing Programs
Many states, counties and cities provide low to moderate housing finance programs, down payment assistance programs, or programs tailored specifically for a first time buyer. These programs are typically more lenient on the qualification guidelines and often designed with lower upfront fees. Also, there are often loan assistance programs offered at the local or state level such as MCC (Mortgage Credit Certificate) which allows you a tax credit for part of your interest payment. Most of these programs are fixed rate mortgages and have interest rates lower than the current market. Return to top
Many states, counties and cities provide low to moderate housing finance programs, down payment assistance programs, or programs tailored specifically for a first time buyer. These programs are typically more lenient on the qualification guidelines and often designed with lower upfront fees. Also, there are often loan assistance programs offered at the local or state level such as MCC (Mortgage Credit Certificate) which allows you a tax credit for part of your interest payment. Most of these programs are fixed rate mortgages and have interest rates lower than the current market.
Fixed Rate Mortgage
With fixed rate mortgage (FRM) loans, the interest rate and your mortgage monthly payments remain fixed for the period of the loan. Fixed rate mortgages are available for 40, 30, 25, 20, 15 years or even 10 year terms. Generally, the shorter the term, the lower the interest rate. The most popular fixed rate mortgage terms are 30 and 15 years. With the traditional 30-year fixed rate mortgage, your monthly payments are lower than they would be on a shorter term loan. However, if you can afford the higher monthly payments, a 15-year fixed-rate mortgage allows you to repay your loan twice as fast and save more than half the total interest costs of a 30-year term. Return to top
With fixed rate mortgage (FRM) loans, the interest rate and your mortgage monthly payments remain fixed for the period of the loan. Fixed rate mortgages are available for 40, 30, 25, 20, 15 years or even 10 year terms. Generally, the shorter the term, the lower the interest rate.
The most popular fixed rate mortgage terms are 30 and 15 years. With the traditional 30-year fixed rate mortgage, your monthly payments are lower than they would be on a shorter term loan. However, if you can afford the higher monthly payments, a 15-year fixed-rate mortgage allows you to repay your loan twice as fast and save more than half the total interest costs of a 30-year term.
Adjustable Rate Mortgage (ARM)
Adjustable rate mortgages are loans with interest rates (and monthly payments), that fluctuate over the term of the loan. ARM mortgage payments are amortized over a 30 year term. With this type of mortgage, periodic adjustments based on changes in a defined index are made to the interest rate. The index for your particular loan is established at the time of application. Four well known ARM indexes include: Treasury Bill (T-Bill) 12-Month Treasury Average (MTA) London Inter Bank Offering Rate (LIBOR) 11th District Cost of Funds Index (COFI) Return to top
Adjustable rate mortgages are loans with interest rates (and monthly payments), that fluctuate over the term of the loan. ARM mortgage payments are amortized over a 30 year term. With this type of mortgage, periodic adjustments based on changes in a defined index are made to the interest rate. The index for your particular loan is established at the time of application.
Four well known ARM indexes include:
Fixed Period ARM
With fixed-period ARMs, homeowners can enjoy from two to ten years of fixed payments before the first interest rate change. At the end of the fixed period, the interest rate will adjust annually or bi-annually. Fixed-period ARMs – 2/28, 3/27, 5/25, 7/23 and 10/20 – are generally tied to the one-year Treasury securities index, one-year LIBOR index, or 6-month LIBOR index. Fixed Period ARMs usually also have a first adjustment cap, which limits the interest rate you will pay the first time your rate is adjusted. First adjustment caps vary with type of loan program. The advantage of these loans is that the interest rate is lower than for a 30-year fixed (the lender is not locked in for as long so their risk is lower and they can charge less) but you still get the advantage of a fixed rate for a period of time. Like ARMs, Fixed Period ARM mortgage payments are amortized over a 30 year term. Return to top
With fixed-period ARMs, homeowners can enjoy from two to ten years of fixed payments before the first interest rate change. At the end of the fixed period, the interest rate will adjust annually or bi-annually. Fixed-period ARMs – 2/28, 3/27, 5/25, 7/23 and 10/20 – are generally tied to the one-year Treasury securities index, one-year LIBOR index, or 6-month LIBOR index. Fixed Period ARMs usually also have a first adjustment cap, which limits the interest rate you will pay the first time your rate is adjusted. First adjustment caps vary with type of loan program.
The advantage of these loans is that the interest rate is lower than for a 30-year fixed (the lender is not locked in for as long so their risk is lower and they can charge less) but you still get the advantage of a fixed rate for a period of time. Like ARMs, Fixed Period ARM mortgage payments are amortized over a 30 year term.
Balloon Mortgage
Balloon mortgages are short-term fixed rate loans that have fixed monthly payments based upon a 30-year fully amortizing schedule and a lump sum payment at the end of its term. Usually they have terms of 3, 5, or 7 years. The advantage of this type of loan is that the interest rate on balloon loans is generally lower than 30 and 15 year mortgages resulting in lower monthly payments. The disadvantage is that at the end of the term you will have to come up with a lump sum to pay off your lender, either through selling the home, refinance, or from your own savings. Balloon mortgages with a refinance option allows borrowers to convert the mortgage at the end of the balloon period to a fixed rate loan (based upon the outstanding principal balance) if certain conditions are met. If you refinance the loan at maturity, you need not be re-qualified, nor the property re-approved. The interest rate on the new loan is a current rate at the time of conversion. There is generally a minimal processing fee associated with obtaining the new loan. The most popular terms are 5/25 Balloon, and 7/23 Balloon. Return to top
Balloon mortgages are short-term fixed rate loans that have fixed monthly payments based upon a 30-year fully amortizing schedule and a lump sum payment at the end of its term. Usually they have terms of 3, 5, or 7 years. The advantage of this type of loan is that the interest rate on balloon loans is generally lower than 30 and 15 year mortgages resulting in lower monthly payments. The disadvantage is that at the end of the term you will have to come up with a lump sum to pay off your lender, either through selling the home, refinance, or from your own savings.
Balloon mortgages with a refinance option allows borrowers to convert the mortgage at the end of the balloon period to a fixed rate loan (based upon the outstanding principal balance) if certain conditions are met. If you refinance the loan at maturity, you need not be re-qualified, nor the property re-approved. The interest rate on the new loan is a current rate at the time of conversion. There is generally a minimal processing fee associated with obtaining the new loan. The most popular terms are 5/25 Balloon, and 7/23 Balloon.
Deferred Interest Mortgage
Deferred Interest Mortgages (also called Negative Amortization or NegAm Mortgages) have a minimum monthly payment that is less than the interest owed. The remaining interest owed is then added to the principal (hence the name Deferred Interest), generally to a cap of 115% of the original loan balance. When the 115% cap is reached, the loan recasts and all future payments must be fully amortizing, based on a 30 year term. For this reason, borrowers who employ Deferred Interest Mortgages plans, generally refinance into a new Deferred Interest Mortgages every 3-5 years (at or prior to recast). The advantage of negatively amortizing loans is that you can control cash flow and pay back the money borrowed today at a depreciated value years from now (because of natural inflation). This makes such loans a great tool for both homeowners and investors as long as they understand the mechanics of the product. Return to top
Deferred Interest Mortgages (also called Negative Amortization or NegAm Mortgages) have a minimum monthly payment that is less than the interest owed. The remaining interest owed is then added to the principal (hence the name Deferred Interest), generally to a cap of 115% of the original loan balance. When the 115% cap is reached, the loan recasts and all future payments must be fully amortizing, based on a 30 year term. For this reason, borrowers who employ Deferred Interest Mortgages plans, generally refinance into a new Deferred Interest Mortgages every 3-5 years (at or prior to recast).
The advantage of negatively amortizing loans is that you can control cash flow and pay back the money borrowed today at a depreciated value years from now (because of natural inflation). This makes such loans a great tool for both homeowners and investors as long as they understand the mechanics of the product.
Option ARM Loan
A type of deferred interest mortgage, most option ARMs adjust monthly, however some are designed to only adjust every three months. Because of the adjustable rates of the Option ARM, the amount of deferred interest must be regularly monitored and managed in order to accurately forecast when the loan will recast (when the loan reaches 115% of the original loan balance through deferred interest). Borrowers who employ Deferred Interest Mortgages plans generally refinance into a new Deferred Interest Mortgages every 3-5 years (at or prior to recast). The Option ARM mortgage is so-called because the borrower has 4 payment options to choose from each month. Deferred Interest payment Interest-only payment 30-year amortized payment 15-year amortized payment Return to top
A type of deferred interest mortgage, most option ARMs adjust monthly, however some are designed to only adjust every three months. Because of the adjustable rates of the Option ARM, the amount of deferred interest must be regularly monitored and managed in order to accurately forecast when the loan will recast (when the loan reaches 115% of the original loan balance through deferred interest). Borrowers who employ Deferred Interest Mortgages plans generally refinance into a new Deferred Interest Mortgages every 3-5 years (at or prior to recast).
The Option ARM mortgage is so-called because the borrower has 4 payment options to choose from each month.
Hybrid ARM Loan
A type of deferred interest mortgage, the Hybrid ARM is a cross between an option ARM and a Fixed Period ARM. The Hybrid ARM has the flexible payment options of the Option ARM, with the fixed interest rate period of the Fixed Period ARM. Unlike the option ARM, the deferred interest of the Hybrid ARM is set each month, allowing the borrower to know exactly when the loan will recast (when the loan reaches 115% of the original loan balance through deferred interest). Borrowers who employ Deferred Interest Mortgages plans generally refinance into a new Deferred Interest Mortgages every 3-5 years (at or prior to recast). Return to top
A type of deferred interest mortgage, the Hybrid ARM is a cross between an option ARM and a Fixed Period ARM. The Hybrid ARM has the flexible payment options of the Option ARM, with the fixed interest rate period of the Fixed Period ARM. Unlike the option ARM, the deferred interest of the Hybrid ARM is set each month, allowing the borrower to know exactly when the loan will recast (when the loan reaches 115% of the original loan balance through deferred interest). Borrowers who employ Deferred Interest Mortgages plans generally refinance into a new Deferred Interest Mortgages every 3-5 years (at or prior to recast).
Amortizing Mortgage
A mortgage in which all principal is paid off in a specified period of time (often 15 or 30 years) through monthly principal and interest payments. In the beginning of an amortizing mortgage, most of the payment pays the interest due and a smaller portion makes a principal reduction. With each principal reduction, the interest owed on the balance reduces, as does the ratio of interest-to-principal with each payment. Toward the end of an amortizing mortgage, only a small portion of the payment pays the interest due (because the balance has slowly been reduced) and the larger portion makes a principal deduction. Return to top
A mortgage in which all principal is paid off in a specified period of time (often 15 or 30 years) through monthly principal and interest payments. In the beginning of an amortizing mortgage, most of the payment pays the interest due and a smaller portion makes a principal reduction. With each principal reduction, the interest owed on the balance reduces, as does the ratio of interest-to-principal with each payment. Toward the end of an amortizing mortgage, only a small portion of the payment pays the interest due (because the balance has slowly been reduced) and the larger portion makes a principal deduction.
Interest Only Feature
An interest-only feature is for a loan in which, for a set term, the borrower may make interest-only payments based on the principal balance, with the principal balance unchanged. At the end of the interest-only term (typically 10 or 15 years), the loan balance is amortized to a principal and interest payment, based on a 20 or 15 year term. Return to top
An interest-only feature is for a loan in which, for a set term, the borrower may make interest-only payments based on the principal balance, with the principal balance unchanged. At the end of the interest-only term (typically 10 or 15 years), the loan balance is amortized to a principal and interest payment, based on a 20 or 15 year term.
Home Equity Line of Credit (HELOC)
A Home Equity Line of Credit (or HELOC, pronounced HEE-lock) is a mortgage in which the lender agrees to lend to a maximum amount within a given term (5-25 years). A HELOC differs from a conventional home equity loan (or HELoan) in that the borrower is not advanced the entire sum up front (similar to a regular loan), but uses the line of credit to borrow sums that total no more than the amount (similar to a credit card). A HELOC can be either a first mortgage or (more typically) a second mortgage. At closing you are assigned a specified credit limit that you can borrow up to. During the "draw period" (typically 5 to 25 years), the HELOC funds can be borrowed as needed and you pay back only what you use plus interest. The minimum monthly payment is interest-only; beyond the minimum, it is up to you how much to pay and when to pay. At the end of the draw period, you will have to pay back the full principal amount borrowed either in a lump-sum (balloon payment) or according to a loan amortization schedule. The interest rate on a HELOC is adjustable monthly, based on the prime rate (usually Prime + a margin). This means that the interest rate can (and almost certainly will) change over time…either up or down. HELOCs are popular because the interest paid is generally (depending on specific circumstances) tax deductible. This effectively reduces the cost of borrowing funds. Another reason for the popularity of HELOCs is the flexibility not found in most other loans - both in terms of borrowing "on demand" and repaying the principal at the borrowers discretion. Return to top
A Home Equity Line of Credit (or HELOC, pronounced HEE-lock) is a mortgage in which the lender agrees to lend to a maximum amount within a given term (5-25 years). A HELOC differs from a conventional home equity loan (or HELoan) in that the borrower is not advanced the entire sum up front (similar to a regular loan), but uses the line of credit to borrow sums that total no more than the amount (similar to a credit card). A HELOC can be either a first mortgage or (more typically) a second mortgage.
At closing you are assigned a specified credit limit that you can borrow up to. During the "draw period" (typically 5 to 25 years), the HELOC funds can be borrowed as needed and you pay back only what you use plus interest. The minimum monthly payment is interest-only; beyond the minimum, it is up to you how much to pay and when to pay. At the end of the draw period, you will have to pay back the full principal amount borrowed either in a lump-sum (balloon payment) or according to a loan amortization schedule.
The interest rate on a HELOC is adjustable monthly, based on the prime rate (usually Prime + a margin). This means that the interest rate can (and almost certainly will) change over time…either up or down.
HELOCs are popular because the interest paid is generally (depending on specific circumstances) tax deductible. This effectively reduces the cost of borrowing funds. Another reason for the popularity of HELOCs is the flexibility not found in most other loans - both in terms of borrowing "on demand" and repaying the principal at the borrowers discretion.
Home Equity Loan (Closed-end Second Mortgage)
Because they are secured against the value of the property, home equity loans are second mortgages, just like a traditional mortgage. Home equity loans (and Home Equity Lines of Credit) are usually, but not always, for a shorter term than first mortgages. Like a fixed first mortgage, the borrower receives a lump sum at the time of the closing and cannot borrow further. The maximum amount of money that can be borrowed is determined by variables including credit history, income, and the appraised value of the collateral, among others. It is not uncommon to be able to borrow up to 100% of the appraised value of the home, less the existing first mortgage balance. Home equity loans generally have fixed rates and, while some have interest-only payment options, most have amortized payments for periods of up to 30 years. Return to top
Because they are secured against the value of the property, home equity loans are second mortgages, just like a traditional mortgage. Home equity loans (and Home Equity Lines of Credit) are usually, but not always, for a shorter term than first mortgages.
Like a fixed first mortgage, the borrower receives a lump sum at the time of the closing and cannot borrow further. The maximum amount of money that can be borrowed is determined by variables including credit history, income, and the appraised value of the collateral, among others. It is not uncommon to be able to borrow up to 100% of the appraised value of the home, less the existing first mortgage balance.
Home equity loans generally have fixed rates and, while some have interest-only payment options, most have amortized payments for periods of up to 30 years.
Bridge Loan
Bridge Loans provide a convenient means for sellers to buy new homes before selling their existing homes, quickly granting loans up to 80% of their existing property’s market value. These interim short-term and high-interest loans are paid and closed when the borrowers sell their old property. Return to top
Bridge Loans provide a convenient means for sellers to buy new homes before selling their existing homes, quickly granting loans up to 80% of their existing property’s market value. These interim short-term and high-interest loans are paid and closed when the borrowers sell their old property.
Lot Loan
Designed for applicants wanting to build a custom home (Single Family Residence) within 20 years of obtaining the lot. Return to top
Designed for applicants wanting to build a custom home (Single Family Residence) within 20 years of obtaining the lot.
Construction Loan
A construction loan is a temporary loan usually lasting six months to a year that is used to pay for the building (or major re-model) of a house. Construction loans are paid off by a long-term mortgage loan on the completed home. The funds from a construction loan are paid out in stages over the course of the building project and the lender usually is involved throughout the course of construction, reviewing completed work at various stages. Construction loans are also very closely tied to the final mortgage on the property. Borrowers are approved for both the construction loan and the final loan before construction begins. The construction loan and the long-term mortgage loan on the finished house are often tied together in what is called an "OTC or One Time Close” loan. The benefits of this are reduced closing costs and an easier application and approval process. Essentially you are applying for one loan instead of two. Return to top
A construction loan is a temporary loan usually lasting six months to a year that is used to pay for the building (or major re-model) of a house. Construction loans are paid off by a long-term mortgage loan on the completed home.
The funds from a construction loan are paid out in stages over the course of the building project and the lender usually is involved throughout the course of construction, reviewing completed work at various stages. Construction loans are also very closely tied to the final mortgage on the property. Borrowers are approved for both the construction loan and the final loan before construction begins.
The construction loan and the long-term mortgage loan on the finished house are often tied together in what is called an "OTC or One Time Close” loan. The benefits of this are reduced closing costs and an easier application and approval process. Essentially you are applying for one loan instead of two.
100% Financing
By definition, 100% financing does not require a down payment, as these homes are financed to 100% of their value. 100% financing can be either a single mortgage or a 1st and 2nd mortgage combination (referred to as an 80/20 or 75/25 combo). The advantage of 1st and 2nd combos are lower interest rates and the elimination of private mortgage insurance. The advantage of a single 100% loan is the simplicity of one payment and flexible qualification guidelines (2nd mortgages – as in a 1st and 2nd combo – have stricter guidelines and higher credit score requirements than their 1st mortgage counterparts). 100% financing can be used with any term (10-40 year), almost any product (1 year ARM to 30 year fixed), to any type (conforming, government, non-conforming, or sub-prime). Return to top
By definition, 100% financing does not require a down payment, as these homes are financed to 100% of their value. 100% financing can be either a single mortgage or a 1st and 2nd mortgage combination (referred to as an 80/20 or 75/25 combo). The advantage of 1st and 2nd combos are lower interest rates and the elimination of private mortgage insurance. The advantage of a single 100% loan is the simplicity of one payment and flexible qualification guidelines (2nd mortgages – as in a 1st and 2nd combo – have stricter guidelines and higher credit score requirements than their 1st mortgage counterparts).
100% financing can be used with any term (10-40 year), almost any product (1 year ARM to 30 year fixed), to any type (conforming, government, non-conforming, or sub-prime).
Reduced Documentation Loan
Reduced documentation loans allow borrowers with good credit to secure a mortgage without documenting income, assets, and in some cases, even employment. This is especially helpful for self employed or commissioned borrowers who use large deductions to reduce their income tax burden. They also benefit those who can't or don't want to source where the down payment and closing costs are coming from. These loans can be secured with as little as 0% down payment for those who qualify based on credit history. Compared to their fully documented counterpart, these loans generally come with higher interest rates due to the increased amount of risk the lender assumes. Reduced documentation loans can be used with any term (10-40 year), almost any product (1 year ARM to 30 year fixed), to almost any type (conforming, non-conforming, or sub-prime). Return to top
Reduced documentation loans allow borrowers with good credit to secure a mortgage without documenting income, assets, and in some cases, even employment. This is especially helpful for self employed or commissioned borrowers who use large deductions to reduce their income tax burden. They also benefit those who can't or don't want to source where the down payment and closing costs are coming from. These loans can be secured with as little as 0% down payment for those who qualify based on credit history. Compared to their fully documented counterpart, these loans generally come with higher interest rates due to the increased amount of risk the lender assumes.
Reduced documentation loans can be used with any term (10-40 year), almost any product (1 year ARM to 30 year fixed), to almost any type (conforming, non-conforming, or sub-prime).
Copyright © 2007 Mead/Taylor Financial Group