In the past, homebuyers more or less had limited mortgage loan
options. These days, there are more options than you can shake a
stick at, but here's a primer on the basics.
With the real estate market explosion over the last 10 years, a
call has gone out for unique mortgage loan programs. Bankers
have been more than happy to answer the call. For many
borrowers, traditional mortgage loans still fit the bill. Here's
1. Conforming Loans - The loans comply with requirements set
down by Fannie Mae and Freddie Mac, two government sponsored
entities that buy and sell loans from mortgage lenders. These
entities put strict caps on the loans they will buy, with
single-family homes having a mortgage cap in the range of
$360,000. With the booming real estate market, many areas such
as San Diego do not come close to fitting into the conforming
loan market since homes average in the $600,000 range.
2. Non-Conforming Loans - Known as "Jumbo Loans", these
mortgages are written for loans that exceed the $360,000 cap
mentioned previously. They tend to have slightly higher interest
rates, but are readily available.
3. Bad Credit Loans - In the mortgage industry, mortgage brokers
often refer to a borrower's "paper." This paper refers to people
with less than stellar credit. "B" paper refers to relatively
small problems, while "D" paper refers to bigger issues such as
bankruptcy filings. The worse your paper, the more you can
expect to pay in interest, points and down payment amounts. You
need to carefully determine whether paying these extra penalties
makes financial sense.
With each of the above loans, you'll have an option of going
with a fixed interest rate or an adjustable rate. Fixed interest
rates simply set a definitive interest rate that will be charged
over the length of the loan. Adjustable rates typically start at
a figure lower than fixed rates, but can be moved up to reflect
changes in the cost of borrowing money. In many ways, you are
betting whether interest rates will increase in the future.
For a great majority of people, basic mortgage loan options
still suffice when it comes to borrowing money. Don't fret if
you have problems qualifying for these loans. There are many
other options on the market these days.
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