What is an Adjustable Rate Mortgage?
What is a Balloon Loan?
What is a "B" loan or "B paper" loan?
What is a Conforming Loan?
What is FHA?
What is a Fixed Rate Mortgage?
What is a Jumbo Loan?
What is the Difference Between Conventional and Government Loans?
What is Private Mortgage Insurance (PMI)?
What program should I choose?
What is VA?
How are current rates?

What is an Adjustable Rate Mortgage? A variable or adjustable rate mortgage is a loan that adjusts interest rates, and hence monthly payments, over the course of the loan. Depending on the loan program, the changes are based on a particular index (such as Treasury Bill, Certificate of Deposit Index, or Prime Rate). To calculate the rate, a margin is added to the index. Margins are fixed over the term of the loan, and there is typically a limit to how much your rate can increase over the life of the loan, as well as a periodic or adjustment cap to limit how much your rate can go up at one time. [back to top]

What is a "B" loan or "B paper" loan? Loans that meet the borrower credit requirements of Fannie Mae and Freddie Mac are "A" paper conforming loans. Those loans that do not meet those criteria are referred to as "B", "C" or "D" paper loans. These "B" and "C" loans are offered to borrowers that may have late payments on their credit reports, a recent bankruptcy or foreclosure, etc. These loans typically have higher rates and different programs than conforming loans. Many home buyers choose this type of financing so they can buy a home, with the plan of refinancing once they are able to qualify for conforming financing. [back to top]

What is a Balloon Loan? A short-term fixed rate loan that has fixed monthly payments based on a 30 year amortization schedule with a lump sum payment at the end of the loan term is called a balloon loan. Terms are often 3, 5, or 7 years. The reason some borrowers opt for this type of financing is that they typically have lower interest rates. The down side is needing to either refinance to cover the lump sum payment at the end, or having the cash on hand to pay it off. Some loan programs have an option to refinance built-in that does not require the borrower to re-apply. [back to top]

What is a Conforming Loan? A conventional loan may be conforming or non-conforming. To be conforming, the loan must follow terms and conditions set by Fannie Mae and Freddie Mac. Fannie Mae and Freddie Mac are corporations that buy mortgage loans from mortgage lenders, package those loans into securities, then sell them to investors. Guidelines are established by Fannie Mae and Freddie Mac that deal with maximum loan amount, down payment, credit and income requirements, etc. For example, the 2005 loan limit for single family homes is $359,650 in most places (including Michigan). [back to top]

What is FHA? The U.S. Department of Housing and Urban Development (HUD) has a division called the Federal Housing Administration (FHA) that administers various mortgage loan programs. In general FHA loans have lower down payment requirements and are easier to obtain than conventional mortgage financing. There is a statutory limit that FHA loans cannot exceed. [back to top]

What is a Fixed Rate Mortgage? If you have a fixed rate loan, your interest rate and monthly mortgage payments stay the same for the duration of the loan. The most common loan terms are for 30 years and 15 years. Typically the shorter the length of the loan, the lower the interest rate is. [back to top]

What is a Jumbo Loan? Mortgage loans that exceed the maximum loan amount established by Fannie Mae and Freddie Mac are considered to be "Jumbo" loans. [back to top]

What is Private Mortgage Insurance (PMI)? It is a type of insurance that is required to protect the lender in the event the buyer defaults on the loan. It is typically required on a high loan-to-value ratio loan (less than 20% down). [back to top]

What are Conventional and Government Loans? FHA (Federal Housing Administration), VA (Veterans Affairs), and RHS (Rural Housing Service) are considered government loans. Any other mortgage loan is conventional. There are different types of conventional loans, see Conforming Loans. [back to top]

What program should I choose? Everyone's financial situation is different. Choosing a program depends on a number of factors such as: how long you intend to stay in your home, how much money you have to put down, what your credit scores look like, and so forth. The best way to make sure you are getting a good fit is to have a personal consultation with a mortgage professional that can explain a variety of programs to you. If you're interested, give me a call at 734-741-1675 or email me. [back to top]

What is VA? Certain mortgage products are available to veterans and service persons that have favorable loan terms, often without a down payment. In general, it is easier to qualify for a VA loan than a conventional loan. The U.S. Department of Veterans Affairs guarantees mortgage loans, they do not lend the money themselves. In order to obtain a VA loan, an applicant must obtain a certificate of eligibility from the VA. The borrower then applies to a private lending institution, as opposed to the VA directly. [back to top]

How are current rates? Rates between programs always vary. In order to get the most up to date information, please email me or give me a call at 734-741-1675. [back to top]