Fixed Rate Loans are offered in varying lengths, including 10, 15, 20, 25 and 30-year periods. A fixed rate loan offers equal payments throughout the life of the loan.

• Purchases: Standard purchases usually require a 3-5% down payment.
• Refinances: Refinances usually require a minimum of 5-10% equity in the subject property.
• Types of Financing: Fixed rate programs are available for primary, secondary and investment properties. This includes conventional, FHA, VA and Less-than-Perfect Credit programs.
• Assumability: Conventional fixed rate loans are not assumable to someone buying your home. However, FHA and VA allow assumable loans with the purchaser qualifying for the mortgage.

Balloons have a fixed payment for the first 5 or 7 years of the loan, with payments based on a 30-year amortization. At the end of the initial time period the balance and unpaid interest must be paid off. Most lenders offer a conditional right to refinance the loan at the end of the term with a small fee. The lender will notify the borrower 60 days prior to the note’s due date. A balloon must be paid off or refinanced when it comes due.

Conditional Right to Refinance:
Standard conditions are (1) you must still own and occupy the property, (2) you cannot have made any late payments on the mortgage in the last 12 months, (3) no other liens against the property other than the first mortgage exist, (4) the new note rate cannot exceed 5 percentage points above the original note rate, (6) the is usually a $250 conversion fee charged by the lender.

Requalification of the Borrower:
Most lenders do not require that you requalify for the modified rate note.

Purchases:
7-Year Balloon – 5% to 10% down payment
5-Year Balloon – 5% to 10% down payment

Applicable Types of Refinancing:
Conventional loan balloons typically apply to all types of loans.

Assumability:
Balloons are not assumable.

Typical types of ARMs are 10/1, 7/1, 5/1, 3/1, 3/6, 2/1, 1/1. ARMs are normally amortized over a 30-year period. The first number listed is the term the rate is fixed and the second number is the index to which it is tied. The index will explain how often the rate can adjust after the fixed period.

For example, a 10/1 arm is fixed for a period of ten years and then converts to the one-year treasury bill. The rate then will adjust every 12 months after the fixed period. (This is represented by the 1 – meaning 1 year).

How Your Interest Rate and Payment is Determined:

Adjustable Rate Mortgages consist of an index and margin. Typically the index is tied to a constant maturity of a one-year treasury index (which can be found in the Wall Street Journal or financial publications). The index fluctuates based on interest rates. The margin is a fixed amount throughout the life of the loan. After the ARM’s fixed period, the loan is based on the current index plus the margin.

EX: Your current rate of 6% at the end of your fixed period, the index is 4.801 and the margin is 2.75% = a new rate of 7.551 rounded up to the nearest eight (0.125), giving you a new adjusted rate of 7.625%.

Your payment will be based on the interest rate, loan balance and term.

The ARM will have caps of 2/6, 5/2/5, 1/5 or other possible caps. Examples: The 2/6 caps are a 2% maximum rate change per year and a life cap of 6%. 5/2/5, the first maximum adjustment is 5% over the start rate, every other adjustment is 2% annually and a life cap of 5% over the start rate.

If you have less than perfect credit, there are loans for you. These programs are called subprime loan/B/C credit loans. They are rated based on your mortgage and other credit obligation payment history.

Purchases/Refinances:
A–Credit requires a minimum of 10% down payment.
B–Credit requires a minimum of 15-20% down payment.
C–Credit requires a minimum of 20-25% down payment.
D–Credit requires a minimum of 30% down payment.

Types of Financing:
Financing is available for primary homes, secondary homes and investment properties. Conventional loans and private party financing are available for less than perfect credit lending.

Assumability:
Most loans are not assumable.

Private Party financing is available to nearly everyone. This type of loan is based on loan-to-value, or LTV.

• Most private investors lend a maximum of 70% LTV.
• Some loans do not require income or credit.
• All loans require standard loan fees and borrowers pay loan origination/discount fees totaling on average 4-8% (this is variable depending upon borrower’s strengths or weaknesses).
• Most loans have a balloon in one to two years and tend to have higher rates.
• Many loans have an interest only option that helps to keep the payment amounts reasonable

Purchases/Refinances:
30% down payment or equity in property (minimum requirement)
35-40% down payment or equity in investment properties.

Types of Properties for Which Financing is Available:
Primary residences, second homes and investment properties.

Assumability:
Not common, but it depends upon priva

This program, called the 251 program, is the adjustable Rate Mortgage (ARM) that the FHA began offering in 1991. It can be used to purchase new or existing, 1 to 4 family owner-occupied primary homes. It also is available for refinancing homes. All types of FHA loans have loan limitations based on the county the property is in.

This type of loan is subject to a yearly rate adjustment, indexed to the rate of US Treasury Securities. However, there are limits (Caps) on how much the rate can change annually (1.00%) and over the life of the loan (5.00%). The 1% annual cap is an excellent feature compared to conventional ARM loans that typically adjust 1% each six months or 2% annually. The FHA ARM is fully amortized over 30 years.

FHA will be offering 3/1 and 5/1 adjustable rate loans in 2004.

This program, called the 203b program, is the popular FHA fixed rate loan. Its term is 30 years and is a fully amortized loan. It can be used to purchase new or existing, 1 to 4 family owner-occupied primary homes. Streamline refinances are also available without re-qualifying.

The interest rate of a FHA fixed rate loan can be lowered for the life of the loan by paying discount points to the lender. This is referred to as a “permanent” (life of loan) buydown. The rate can also be bought down on a temporary basis. A popular temporary buydown is the 2-1, which means the rate is 2% lower than the note rate for the first year, 1% below the note rate for the second year and at the note rate thereafter.

This 203b program is limited to single family, attached, detached, condos, townhomes, Planned Unit Development (PUD) homes, including manufactured homes meeting certain eligibility requirements. All property types must be qualified for eligibility.

This program is for active and discharged veterans in good standing with the Veteran Administration. Offered on fixed rates for 30, 15 years and a 2/1 buydown on a fixed rate and 3/1 and 5/1 Adjustable rate mortgages for no money down purchases or refinances.

The program is offered on a variety of Adjustable Rate Mortgages and Fixed Rates. Example: 3/1, 5/1, 7/1 ARMs. For a fixed period of time, the borrower can opt to pay only the interest of each scheduled mortgage payment.

This loan program varies but can be intended for salaried, commissioned or self-employed borrowers. Income is stated but not verified on the application (it must make sense for the occupation and provided assets in most cases). The rate is based on credit scores, LTV, and assets available.

This program again varies but can be used by salaried, commissioned, or self employed borrowers. Employment information is provided, but no income or asset information is required.

This program is based on down payment – normally 20% down – and credit scores. No information about employment, income, or assets is required.