Mortgage Loan Programs
Infinite Loan Types to Choose From
There are numerous home loan programs to choose from. However, the vast majority of prospective homeowner opt for the 30-year fixed loans. These types of loans account for nearly 90% of the market share, regardless of what has happened over time.
There are numerous types of home loans in the market. Mortgage lenders are ever innovating new products, wrangling in new homeowners. It is important that you understand the loan you are about to purchase before committing.
At the turn of the millennium, if you were in the market for a mortgage loan you might have come across loan programs that allowed seemingly anyone to qualify for a mortgage loan. For instance, there was the notorious pick-a-payment (also known as neg-ams or 1% start rate loans). These loans stretched the mortgage payment anywhere from 40 years to 50 years, long enough to seem like a lifetime.
However, if you are in the market for a mortgage loan today, you will not come across such offers. Government lending through programs such as VA loans and FHA loans has become more popular as the 2008 mortgage crisis brought an end to the risker loans types.
These changes in the mortgage market does not mean there are no exciting home loan programs in the market that will suit your needs and personal situation. In fact, with each passing year, more and more creative products are being developed.
Similar to the past, many borrowers are interested in products that offer 100% financing as they usually do not have the assets needed to make a down payment for real estate property.
Let’s explore the various products and programs on the market.
Some of the loan products available include:
Non-Conforming and Conforming loans
The types of loans that can be bought by Freddie Mac and Fannie Mae are known as conforming loans., they adhere to their laid out guidelines. Any other loans that do not adhere to their underwriting criteria are known as non-conforming loans.
One of the ways to differentiate loans is through their GSE eligibility. If a particular loan meets the requirements as laid out by Freddie Mac and Fannie Mae, then the loan is conforming loan. Conversely, if a loan does not meet the mortgage underwriting requirements that have been set forth by both of these GSE organizations, these are non-conforming loans. The vast majority of mortgage lenders create products that are conforming. These types of loans are the easiest to sell on the secondary market.
One of the criteria used to determine whether a loan is conforming or not is the amount of loan. Generally, a loan of $453,100 or below is considered as a conforming loan. Any loan that exceeds this amount is considered as a ‘Jumbo Loan’.
That being said, you should note that this threshold does not apply to all states. In Hawaii and Alaska, the conforming threshold is $679,650. Furthermore, the conforming limit can change annually depending on the market conditions. In the past years, the threshold has been rising in response to the skyrocketing prices of houses.
While a Jumbo Loans may meet all of Freddie Mac and Fannie Mae’s requirements, purely based on the fact that the loan exceeds the conforming limit, it is considered as a non-conforming, and, therefore, it attracts higher mortgage rates.
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Government Loans and Conventional Loans
Conventional loans are the types of loans that are not backed by the government. These loans include all types of loans, including the Freddie Mac and Fannie as well as Jumbo Loans. Government loans include those offered by the USADA, VA, and FHA.
Mortgages can also be classified as government loans or conventional loans. Conventional loans can also be conforming or jumbo loans. However, these loans are not guaranteed or insured by the government.
Government loans are those backed by the government or a governmental entity, including the loans provided by the Federal Housing Administration (FHA). Another popular type of government loan is the VA loans. VA loans are backed by the Department of Veteran Affairs. These have zero down payment financing. The USDA home loans are also popular government loans which are backed by the United States Department of Agriculture and they offer loans products with 100% financing.
Having learned about the different types of loans on the market, we can now delve into home loan programs available. There are plenty of different home loan programs and new ones seem to energy with each new day. We’ll start with the most well-known program, the 30year fixed-rate loan.