Mortgage Programs

Institutional lenders - the following mortgage programs are generally offered through banks and other privately held lending institutions and are referred to as Conventional Loans. Conventional loans are loans where the only security guarantee is the value of the property. These loans are the most common mortgage programs available and they are offered by the widest selection of mortgage lenders. Conventional loans are categorized as either conforming or non-conforming loans:

Conforming Loans
Conventional loans that follow the terms and conditions established by the guidelines of Fannie Mae and Freddie Mac. Loan amount limits are currently capped at $417,000 for 1-2 unit properties and $645,300 for 3-4 unit properties, although legislation enacted earlier this year has enabled both Fannie and Freddie to purchase "Temporary Loan Limits" on one-unit properties only up 125 percent of the area median home price in high-cost areas not to exceed $729,750 now through December 31, 2008. Beginning next year in 2009, the temporary loan limits will decrease to $625,500.

Jumbo and Non-Conforming Loans
Loans above the maximum loan amounts established by the guidelines of Fannie Mae and Freddie Mac. These are loan amounts of more than the conforming loan limit of $417,000, or outside the guidelines allowed by the "temporary Loan LImits" up to $729,750. Since these loans do not fit into the guidelines of Fannie Mae or Freddie Mac, the lenders must sell them directly to the secondary market for less profit which means that generally the interest rate charged for a jumbo or non-conforming loan is higher than that of a conforming loan.

• Fixed-Rate Mortgage
  The interest rate and the principal payments remain fixed throughout the loan. Typically the terms offered by these mortgage programs are 30 years, 20 years, and 15 years.  If you elect to have an impound account established your monthly escrow account payment could vary from year-to-year as your property tax and insurance rates change.

• Variable or Adjustable-Rate Mortgage
  The interest rate on the loan fluctuates over the total term or a portion of the loan term. These loan products may offer initial fixed interest rate terms of a few months to a few years. Once the initial fixed term has passed the interest rate will become adjustable periodically. Periodic adjustments (may happen monthly, semi-annually, or annually) to the interest rate are made based on changes to a defined index. Once in the adjustable period of the loan term, the loan's interest rate will be determined by adding a fixed percentage (called the margin) to the defined index, thus determining the fully indexed interest rate which is the rate at which interest will accrue on the principal balance. These loans may include short term fixed mortgages with adjustable rates after the initial fixed term and Negative amortizing loans, also known as Option ARM programs, which are pure adjustable rate mortgages. To learn more about the difference beaten fixed rate mortgages and adjustable rate mortgages please click here.

• Balloon Loan
  Short term, fixed-rate mortgage that has monthly payments usually based on a 30-year amortization schedule and a lump sum payment due at the end of term, usually 3, 5 or 7 years. The interest rate on balloon loans is usually less than a 15- or 30-year fixed-rate mortgage.

• Second Mortgage
  Referred to as a second mortgage because this loan will go on title to a property behind the current first mortgage. These loans may be fixed-rate or adjustable-rate mortgages, and they may also be balloon loans with monthly payments usually based on a 30-year amortization schedule and a lump sum payment due at the end of term, usually 15 years. The most common fixed second mortgage products are 30 year, 20 year, and 15 year fixed rate loans with fully amortized payments. The most common adjustable second mortgage programs are called Home Equity Lines of Credit.

• Piggyback Loan
  A second mortgage that closes with the first. Often the first mortgage is for 80% of the purchase price and the "piggyback" is for 10%. The home buyer covers the remaining 10% with their down payment. (Some lenders will write a second mortgage of 15% or even 20% of the purchase price.)

• Construction & Remodel/Rehab Loans
  A mortgage for the purchase or refinance of property where the mortgage will provide for the funding of construction.  Construction loan amounts are based on the total cost of the construction project and the estimated future value when construction has been completed. These loans will assist a borrower with building a home from the ground up or provide a borrower with funds for a smaller remodel or rehab to a property to be purchased or already owned. Read more about Construction loans. Read more about Remodel / Rehab loans.

• B/C Loans (Sub-prime loans)
  Loans for borrowers who cannot meet the credit guidelines established by Fannie Mae and Freddie Mac. The purpose is to offer temporary financing to someone whose credit history disqualifies them for a conventional conforming or jumbo loan (including someone who has recently filed for bankruptcy, foreclosure or late payment on their credit report). Typically the interest rates run higher and vary depending upon the individual credit situation and usually have required pre-payment penalty terms.

• Housing Finance Agencies
  These agencies offer special loan programs to low- and moderate-income buyers, buyers interested in rehabilitating a home in a targeted area, and other groups as defined by the agency. Working through a housing finance agency, you can receive a below market interest rate, down payment assistance and other incentives.  Find your local housing finance agency >

Government Loans - These loan programs are offered through government sponsored entities so the interest rates and loan amounts are usually less than those offered by institutional lenders. Although these loan programs offered lower fixed interest rates than their conventional loan counterparts, they are far more difficult to qualify for and they offer very conservative mortgage programs with very conservative loan amount restrictions. For high priced areas, such as the Bay Area, these loans make up a very minimal percentage of the loans originated. Read more about Government Loan Programs.

FHA Loans
The Federal Housing Authority (FHA), which is part of the U.S. Department of Housing and Urban Development (HUD), plays a significant role in helping low- to moderate-income families qualify for mortgages. FHA assists first-time buyers and others who would not qualify for a conventional loan, by providing mortgage insurance to private lenders. Interest rates for an FHA loan are usually the going market rate, while the down payment requirements for an FHA loan are lower than conventional loans. The required down payment can be as low as 3 percent and the closing costs can be included in the mortgage amount.

VA Loans
VA Loans are guaranteed by the U.S. Department of Veterans Affairs. Service persons and veterans can qualify for a VA Loan, which usually offers a competitive fixed interest rate, no down payment and limited closing costs. While the VA does not issue the loans, it does issue a certificate of eligibility required to apply for a VA loan.

RHS Loan Programs
The Rural Housing Service (RHS), which is part of the U.S. Department of Agriculture, guarantees loans from private lenders to help low- to moderate income families qualify for mortgages.

Reverse Mortgages
Reverse mortgages are specialized loan programs that enable homeowners who are 62 years and older to convert part of their equity into a supplemental tax-free income without having to sell their home, give up title, or take on new monthly payments. The reverse mortgage is aptly named because instead of making monthly payments as borrowers do with a standard 'forward' loan, the bank makes payments to you in a 'reverse' mortgage. Read more about Reverse Mortgages.

---