CONVENTIONAL LOANS
Conventional loans are loans that are not insured or guaranteed by a government agency (see FHA and VA for information on government loans). They can be conforming or non-conforming loans. Most of the conventional loans that have been made in the last several years have three basic attributes in common:

• They have been for long terms
• They have been loans with fixed interest rates
• They have been fully amortized

CONFORMING LOANS
Conforming loans can be resold in the secondary market due to the fact that they meet nationally accepted underwriting criteria established by national secondary market investors, primarily Fannie Mae (FNMA) and Freddie Mac (FHLMC). This criteria includes down payment amounts, maximum loan amounts, property specifications, borrower income requirements and credit guidelines. Due to the importance of being able to liquidate real estate investments (loans) in the event of a financial problem, the trend for lenders is to obtain loans that meet secondary market standards.

NON-CONFORMING LOANS
Non-conforming loans are loans that do not conform to the guidelines set forth by Fannie Mae or Freddie Mac. Non-conforming loans consist of Jumbo loans (exceeding the conforming loan limit), inadequate credit history or derogatory credit, not enough income, home equity or home improvement loans, credit lines, and second mortgages to name a few.

PRIVATE MORTGAGE INSURANCE (PMI)
A loan with a down payment of less than 20% usually requires Private Mortgage Insurance. Your loan officer will be glad to give you all the information on PMI and how to finance without paying PMI.

FIRST TIME HOMEBUYER LOANS
It is now easier than ever to purchase a home, and first-time homebuyers are comprising a larger percentage of these purchases than ever before.

A great number of government programs have been created to assist the first-time homebuyer in financing their first home. Some of the programs provide tax incentives, while others help the first-time homebuyer by lowering income or down payment requirements.

These programs may vary from one region to another and it's sometimes hard to determine which ones you are eligible for and which ones will be most advantageous to you.

Some more good news is that the definition of 'First Time Homebuyer' refers to anyone who has not owned a home in the last three years in most cases; therefore, if you have owned a home before (but not in the last three years) you may be eligible for this program too.

Lending institutions have also made strides in recent years to benefit new home buyers. For instance, they may now allow higher debt-to-income ratios and be able to assist in ways to work around less than perfect credit. Lenders may also allow gift funds from a relative, or even the seller to be used toward the down payment of your first home. The amount required for a down payment has also been reduced for many loan programs.

So, as you can see, there are a wide variety of first-time homebuyer loan programs available today; however; only one program may be the right one for you.

80-10-10 LOANS
Don't have the 20% down payment needed to avoid the PMI (Private Mortgage Insurance)? What is PMI? In the event that you do not have a 20 percent down payments, lenders will allow a smaller down payment-as low as 5 percent in some cases. With the smaller down payments loans; however, borrowers are usually required to carry Private Mortgage Insurance which will require an initial premium payment of 1.0% to 5.0 % of your mortgage amount and may require an additional monthly fee depending on your loan's structure.

Here is one way to accumulate the 20% down payment. The 80-10-10 loan is a program that has been around for a while. An 80% first mortgage + a 10% second mortgage + a 10% down payment. The 10% down payment can be entirely a gift to the buyer in some cases. In these cases since there is no mortgage insurance required, the buyer saves the monthly premium. Another benefit is that the purchase-money second mortgage is usually tax deductible, while mortgage insurance is not. Always check with your tax advisor before making any financial decisions.

A newer version of this type of loan is an 80-15-5. 80% first mortgage + a 15% second mortgage + a 5% down payment. There are different combinations of loan types available. One example would be a 30-year fixed rate or a 5/1 adjustable rate for the first mortgage combined with a 20-year fixed rate or a 30-year due in 15 years for the second mortgage. (Payment is due at the end of the 15th year.)

FHA LOANS
An FHA loan allows you to put a very low down payment on your home. The maximum loan limit is based on the average cost of living in your area. The FHA program for homebuyers is one of the most popular due to the ease of qualifying and low down payments.

FEATURES AND BENEFITS:
• Down payments less than 3% (as low as 1.25% to 2.85%)
• Gifted down (family, nonprofit, bridal registry) & closing costs OK
• Non-occupying co-borrowers allowed
• No income limits
• Easier qualifying w/ more liberal qualifying ratios than conventional
• Don't have to be first time buyers
• No reserves needed
• Previous credit problems ok on a case by case basis

LIMITATIONS:
• Mortgage insurance required
• Loan limits apply
• Not available for investors

DOWN PAYMENT ASSISTANCE
Down payment assistance may come from several sources and can provide for as much as 100% financing. The most common assistance comes from one of three sources.

A popular option is a first and a second mortgage, both provided by the lender and allows for 100% financing. This creates a unique and desirable loan structure, in that PMI or mortgage insurance is not required on the loan. In a typical loan structure, it is the responsibility of the borrower to provide mortgage insurance when less than a 20% down payment is made.
Another option is also a first and second mortgage with the seller of a property carrying the second mortgage. If the seller is able to carry a second mortgage of 20% or more for a minimum of five years, again PMI can be eliminated.

A gift from a family member, friends, grant, local down payment assistance program (DAP), and a secured or unsecured loan. Unsecured loans may come from family members only , a government assisted program that provides for a mortgage without a down payment.
However; keep in mind that these programs typically have purchase price and/or income limitations. These limitations vary, depending on the location of the property. Therefore; many borrowers or the properties they want to purchase do not qualify for government assisted loans. Examples of government assisted programs include VA.

VA LOANS
The purpose of the VA-guaranteed loan program is to provide loans to veterans to purchase or refinance a home. Veterans can obtain up to 100% financing on purchases.

FEATURES AND BENEFITS:
• No down payment / no cash reserves
• Existing home or new construction OK
• Manufactured homes or lots OK
• Can be used for refinance
• No monthly mortgage insurance
• Don't have to be first time buyers
• Assumable loans subject to VA credit approval
• Can prepay without penalty

LIMITATIONS:
• Co-borrower must be spouse or have own entitlement
• Only open to veterans, active duty military or reservists
• Funding fee added to loan

SHOULD I REFINANCE?
For most people today, refinancing often makes good sense. Why? For many people, today's mortgage rates are much lower than the rates they're currently paying. If this is your situation, you may be able to save a substantial amount of money by refinancing your home loan.

There are other good reasons to refinance. If you have a home equity loan or line of credit, there's a good chance you're paying a higher percentage (maybe 9% to 10% or more). If you have large credit card debts, you could possibly be paying up to 23%. And, you're not able to deduct the credit card interest from your income taxes!

If this sounds like your situation, refinancing your home may be a perfect solution to help reduce your monthly payments. You could literally save hundreds of dollars every month by consolidating your bills into one easy monthly payment.

Another great reason you might want to refinance has to do with you and your family's future. Refinancing your existing loan can give you the cash you need to take advantage of the ever-growing upswing in the stock market, start your retirement portfolio or take stock of other investment programs where your money can work for you.

SHOULD I REFINANCE MY EXISTING LOAN NOW?
Many factors come into play when making the decision to refinance your existing mortgage. You need to ask some important questions: How much lower should my interest rate be for refinancing to make sense?; Can I qualify for a lower rate?, How long will it take for me to recoup the costs of the loan?; and, What type of loan program is right for me? The following questions and answers were designed to help you make an informed decision, and more importantly, to help you know just which questions to ask your loan officer.

In the past, the decision to refinance was usually based on balancing the cost of refinancing with the possible savings in the form of a lower monthly payment. Now, lenders offer "no cost" or "low cost" loan packages that sound good on the surface, but you end up paying for it in the form of a higher interest rate. These programs were designed to eliminate or lower the out-of-pocket expenses previously associated with refinancing your home loan.

FIXED RATE OR ADJUSTABLE, WHICH IS RIGHT FOR YOU?
Here is the simplest definition of the different loan types. If you are someone who is more comfortable with always knowing what your payment will be over the term of the loan, than a Fixed Rate Loan may be what you need; however, if you need to qualify for as much of a loan as possible and the initial interest rate on an ARM makes that possible, than an Adjustable Rate Loan may be for you.

What your lender does is custom tailor your loan to meet your needs so that there are no surprises. The purchase or refinancing of your property with the best possible loan and rate is our only goal.

FIXED RATE LOANS
A long-term fully amortized loan has distinct advantages for the borrower. The equal payments are spread out over a long period of time keeping the payments manageable and there is no balloon payment required at the end of the loan term. This type of loan is the most popular with borrowers mostly because this is the type of loan program that they are most familiar with.

ADJUSTABLE RATE LOANS
There are many variations on an adjustable rate mortgage. When we talk about a "six month ARM" we mean that the loan is for 30 years with an interest rate and monthly payment that adjusts every six months. A 7/1 ARM is a loan with a fixed interest rate and monthly payments for the first seven years then an interest rate that is adjustable annually for the remaining 23 years. The lender is protected because the company can raise the interest rate as rates go up (after the seven year fixed rate period) so they feel that they can offer lower interest than they can on fixed rate loans. There is a "cap" or fixed amount that the interest can increase each year over the term of the loan. With this example (7/1), if you were going to stay in the house for seven years or less, you would be able to take advantage of the lower interest rate. If you were to stay longer than the seven years and the interest rate went up, your payments would go up also.

HOW AN ARM WORKS
The borrower's interest rate is determined by the cost of money at the time the loan is made. Then the rate is tied to a recognized index your lender is currently using for this loan. Your future interest adjustments are then based on the upward or downward movements of this index. An index is a reliable statistical report that reflects the approximate change in the cost of money. Some examples of this would be the monthly average yield on three year treasury securities, or the national average mortgage contract rate for purchases on previously occupied homes. The rise and fall of your payments will fluctuate with the index preferred by the lender for this loan program when your loan was made.

To insure that the expenses of administration and profit are included in the payments to the lender, it is necessary for the lender to add a margin to the index. Different lenders use different margins which explains the variation in interest rates offered for the same loan program. Margins range from 2% to 4% and are added to the index to come up with the interest rate you pay (margin + index = interest rate). It's the fluctuation of the index rate that causes the borrowers interest rate to increase or decrease.

INDEX
Lenders generally use an index that will be responsive to fluctuations in our economy - usually a one-year Treasury security or the cost-of-funds index (COFI). The cost-of-funds index is more stable than the Treasury index because it doesn't rise or fall as sharply over the long term as the Treasury index.

MARGIN
The margin is the difference between the index rate and the interest charged to the borrower. The margin doesn't change throughout the loan term.

"TEASER RATES"
A "teaser rate" is a reduced, first-year introductory interest rate designed to attract borrowers to ARM's. In the past, lenders were losing money on fixed-rate mortgages because these loans were yielding less than the prevailing cost of money. Offering the adjustable-rate mortgage allowed lenders to insulate themselves from these losses and increase earnings by passing the risk of interest rate fluctuations on to the borrower. To make the ARM attractive to borrowers, a low beginning interest rate was offered and through time these introductory rates became known as "teaser rates". The interest rate would then rise at each rate adjustment period until the rate equaled the index rate + the margin. For example, let's say that the introductory rate ("teaser rate") for your adjustable-rate loan started at 4.5% interest and would adjust upward 1.0% every six months. If your index for this loan was 5.0% and the lenders margin was 3.0%, then the interest on your loan for the first six months would be 4.5%. Six months later, it would increase to 5.5% and so on until the fully-indexed rate was reached. To find the fully-indexed rate, you would add the index to the margin (5.0% + 3.0%). After the fully-indexed rate was reached, your loan would then fluctuate with the index on your loan. If the index goes up or down, your payment would increase or decrease with the rise or fall of the index on your adjustment period change date.

RATE ADJUSTMENT PERIOD
The borrowers interest rates on an adjustable-rate mortgage are allowed to be adjusted at certain intervals during the loan term. Depending on the type of adjustable loan you have, this interval could be six months, one year, three years or more.

INTEREST RATE CAP
There are limits on just how much your payments can go up if you have an ARM. Usually these caps are in the form of interest rate caps and/or payment caps. An interest rate cap determines the maximum number of percentage points your interest can increase over the life of the loan.

MORTGAGE PAYMENT ADJUSTMENT PERIOD
The mortgage payment adjustment period is the agreed upon intervals at which the payments of principal and interest are changed. The lender can either adjust the rate periodically and adjust the mortgage payment to reflect the change, or the lender can adjust the rate more frequently than the mortgage payment is adjusted. For example, the loan agreement may call for the interest to be adjusted every six months, but the payment to be adjusted every three years. This scenario could be a problem. If in the interim between payment periods (3 years), interest rates have gone up or down too much, there will have been too much or too little interest paid on the loan by the borrower over that period of time, and the difference will be added to or subtracted from the loan balance. When unpaid interest is added to the loan balance, it is called negative amortization.

MORTGAGE PAYMENT CAP
A mortgage payment cap is the maximum allowable interest rate the lender can charge on your loan regardless of what happens in the market. Depending on your particular loan program, this is a percentage (usually 5% to 7.5% annually) that can be added to your fully indexed rate if the market warrants moving that high. For example, if your fully indexed rate is 8% and your annual cap is 6%, your loans life cap would be 14%.

Mortgage payment caps were designed to limit unrestricted increases by lenders and keep the borrowers payments at a manageable level. Some lenders impose payment caps, some impose interest rate caps and some lenders use both.

NEGATIVE AMORTIZATION CAP
A negative amortization cap limits the amount of negative amortization that can be reached on a loan. When the cap is reached, the loan is re-amortized to a level sufficient to pay off the loan over the remaining term of the loan.

CONVERSION OPTION
A conversion option on an adjustable rate mortgage is called a Convertible ARM. A conversion option gives the borrower the option to convert their adjustable-rate mortgage to a fixed-rate loan. Convertible Arm's normally have a higher initial interest rate (even the converted fixed rate will usually be higher). You will usually have a time frame in which to convert the loan to a fixed rate. For example, you might have to make your decision to convert the loan sometime after the first year and before the fifth year ends. In most cases, there is also a conversion fee imposed on the borrower (for instance 1% of the total loan amount).

PERMANENT BUYDOWNS
Buyers can obtain rates that are lower than the going daily rate offered by paying additional discount points. (Discount points are fees paid to the lender to reduce the interest rate. When you "buy a loan down" you are paying some "extra" money upfront and getting a lower interest rate over the life of the loan.)

CREDIT IMPAIRED LOANS
Credit Challenged? Although you may have credit problems, this may not preclude you from owning or refinancing your home. As a matter of fact, a significant number of the mortgages we originate are for clients who have or have had credit problems.

The world of mortgage lending has changed significantly with the advent of rapidly improving technology. This has opened new doors for borrowers and a new classification of mortgage investors has emerged. This has been a blessing to an enormous number of borrowers; borrowers that lenders traditionally overlooked in the past.

This new lineage of lender understands that credit problems such as late payments, current outstanding liabilities or even bankruptcies may be a result of a variety of causes beyond your control and not a reflection upon your willingness to make timely monthly mortgage payments.

INTEREST ONLY LOANS
For the borrower with moderate price sensitivity who seeks the stability of a fixed payment during the initial period of the loan term. Borrowers looking for cash-flow management options, which allow them to optimize their discretionary cash flow and take advantage of other short-term investment opportunities.

A – D GRADE
This is the measure that loan applications are graded. An "A" grade would be less risky than a "D" loan; therefore, the "A" grade loan will have a lower interest rate.