Mortgage Types First Time Home Buyer Help, Grant Information, Mortgage Education Specialists

Click to hear Dax explain mortgage types:

RAD Financial Services Inc. offers a wide variety of loan products and services, each designed to meet the special needs of our customers. We offer standard conventional and government loans along with several innovative loan programs created and exclusively offered by RAD Financial Services.

RAD Financial Services has a loan program for every situation. Even if your credit has been a problem in the past, our team has a loan that will meet your needs.

Fixed Rate Mortgage
Fixed rate mortgages are probably the most common type of mortgage. "Fixed rate" refers to the fact that the interest rate is agreed upon at initiation of the loan and never changes over the life of the loan. This also means that the principal and interest payment is fixed and will not change over the life of the loan.

Adjustable Rate Mortgage (ARM)
Adjustable rate mortgages do just that: adjust their rate. Simply put, a loan that starts with an initial rate of 5% may be 7% the next year and 9% the 3rd year. Does my payment change? In most cases, yes. When interest rates change, payments are re-calculated on the remaining principal balance for the remaining term at the new interest rate.

Shorter Term Fixed Loan
A short term fixed mortgage refers to a mortgage which has a set interest rate and set payments based on an amortization of 30 years, however, the loan converts to an adjustable loan after a period of 3, 5, 7 or 10 years depending on the program you decide on. This loan is an attractive option for someone who anticipates selling or refinancing their home during the fixed rate period of the loan. What happens if I don't move or sell? Make sure the loan contains no prepayment penalty, that way you can refinance if and when rates drop.

MORTGAGE PROGRAMS

Conventional Loans

Conventional loans originated in the 1930's after the Depression and are the benchmark of all other loan types. This loan has several traits:

Set Monthly Payments: The periodic payment never changes.
Set Interest Rate: The interest rate never changes.
Set Loan Term: Typically 15 or 30 years.
Self Amortization: The loan is paid off at the end of the specified term.

These are privately insured loans, which have more guidelines when, compared to FHA loans. It usually requires a credit score of 620 and down payment from 5% - 25 %. However, recently there have been special conventional loans, which requires as little as 3 % down or even $500.00 down.

Conventional loans are made by private lenders and usually have a lower loan to value ratio than either a FHA or a VA loan, which means that a lower percentage of the property value is loaned. Expressing it another way, higher down payments are required by conventional lenders unless private mortgage insurance (PMI) is used. This characteristically higher down payment has caused many people to prefer financing by FHA or VA mortgage loans, despite the slower administration processing.

Most conventional lenders are restricted to loan to value ratio of no more than 80 percent of the appraised value (80 percent loan and 20 percent down payment), unless the loan is insured for any increased loan amount exceeding 80 per cent of such value.

In recent years, conventional guidelines have changed significantly. In fact, conventional lenders can lend up to 95 percent of appraised value (or up to 100 percent on special affordable housing loans) if borrower agrees to pay for private mortgage insurance (PMI), which insures that portion of the mortgage loan that exceeds 80 percent of value. Many potential buyers will pay PMI to obtain more liberal financing. PMI makes conventional loans more competitive with FHA and VA loans. However, recent years have seen considerable increases in defaulted loans and foreclosures, resulting in substantially increased PMI cost and reluctance to make 95 percent loans.

Non-Conforming (Bad Credit) Loans
Non-conforming loans usually require a higher down payment usually 10- 30 percent depending on derogatory credit file is at the time of the application. Interest rates are usually higher than conforming loans. With 10% - 30 % down payment, buyers with extremely bad credit including a recent foreclosure can own their home. Non-conforming loans often referred to as 'BC' is traditionally designed for individuals with bad credit. However, there are other reasons, which may influence individuals to use this type of financing. Owing to the fact that BC lenders have fewer rules than FHA and Conventional loans they are able to make loans to individuals with even recent foreclosure.

FHA LOANS
These are government-insured loans, which has the most reasonable guidelines. With as little as 2.25 % down payment, homeownership can become a reality.

The Federal Housing Administration was established in 1934 and became the Department of Housing and Urban Development in 1965.It helps to make ownership a reality to borrowers by offering a variety of mortgage plans at minimum cost to buyers.

FHA GENERAL REQUIREMENTS:
Please note the requirements are not engraved in stone and each individual has a unique case. Please ensure that your broker gives you proper advice.
• 2 years Employment history
• Overtime income can be used if continued for two years or there if there is proof of it being continued in the future.
• Fairly good credit history or no established credit history.
• If borrower is enrolled with Credit counseling, it should be continued for at least twelve months for it to be considered.

VA LOANS
This type of loan is also government backed and is available only to Veterans. Some of the features are:

No down payment required
Low interest rates

A VA loan has an up front requirement of a funding fee (FF). This funding fee is a one-time charge which can be rolled into the mortgage amount.

U.S. department of Veteran Affairs guaranties mortgage loans for veterans and servicepersons. The guarantee allows veterans to obtain home loans with favorable loan terms, usually without a down payment. The main purpose of the VA home loan program is to help veterans finance the purchase of homes with favorable loan terms and at a rate of interest which is competitive with the rate charged on other types of mortgage loans.

SECONDARY HOMES
Residences other than the owner's primary residence are considered to be Second homes. This simply means, if you live in one home for more than 70% of the year, even if you do not own that property, it is considered your primary residence. An example of this would be if you were to buy another property that you were planning to spend the other 30% of the year in then the mortgage industry considers that new property as a second home. Why is this distinction of any importance? Well, the Mortgage Industry is always trying to limit the risk factor involved in the loans they are making. According to their research, second homes have a higher default rate than primary residences. Most banks will charge an add-on to the rate and/or points for loans classified as second homes. Now, you're probably thinking, "Why tell them?" For the most part, lenders will have so much information in their files that hiding certain information are more difficult that it's worth. On average, the difference in payment on a second home, is as little as, $30.00 pre month.

REFINANCING
Once you have a mortgage, do not stop paying attention to interest rates even if you never plan to move again. You might be able to save thousands of dollars a year by refinancing into a lower cost loan. Refinancing is simply trading in your old mortgage, sometimes wrapping in a second mortgage or home equity loan, for a new one. Usually, the new mortgage has a lower interest rate, although you may decide to refinance to shorten or lengthen the term of the loan or convert from an adjustable to a fixed rate.

The savings can both be economical and substantial. For example, someone with a $150,000.00 30-year loan at 10% interest rate for instance would cut monthly payments by more than $200.00 with an 8% mortgage. This results in a $75,000.00 - plus savings over the 30 years. If the term were shortened to 15 years at that same 8% rate, monthly payments would increase by approximately $120.00, but the homeowner would save more than $200,000.00 in interest by cutting the term of the loan in half.

Mortgage web site design powered by MorSystems. Get your own mortgage website at MorSystems.com. Free trials for all mortgage websites.