Conventional Loans

Any residential mortgage loan other than a VA or an FHA loan. A conventional loan may be conforming or non-conforming. Government Loans purchased or guaranteed by government organizations such as the Government National Mortgage Association (GNMA or Ginnie Mae). Ginnie Mae which is part of HUD helps increase the supply of affordable housing by guaranteeing securities issued by private lenders backed by pools of residential mortgages insured by three federal agencies -- the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA) and the Rural Housing Service.

Conforming Loans is a loan that conforms to the guidelines established by Fannie Mae or Freddie Mac. These guidelines establish the maximum loan amount, down payment, borrower credit & income requirements, and suitable properties.

Lenders that make loans established to these guidelines may sell those loans to Fannie Mae or Freddie Mac. These lenders may retain the servicing on these loans - so that a borrower will continue to make payments to the original lender. Conforming loans make up the majority of loans in the U.S. Conforming Loan Limits Mainland U.S.$227,150; $290,650 for 2 units; $351,300 for 3 units and $436,600 for 4 units.

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FHA Loans

An FHA loan is a mortgage loan insured by the Federal Housing Authority which is part of the U.S. Department of Housing and Urban Development (HUD). FHA loans used to have lower down payment requirements and were easier to qualify than conventional loans. In recent years, however Fannie Mae or Freddie Mac have introduced low down payment programs like the Community Home Buyer program. The FHA loan limit for Arizona is a home price of $115,900. Besides the 30 yr. fixed, 2-1 Lender paid buydown & adjustable loans, FHA has some very unique programs such the 203K loan (for rehabilitation of run down properties) and the Title 1 loan (for home improvement) which requires no equity.

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Hybrid Loans

30/5 Balloon with conversion option. 5 yr. fixed followed by a 25 yr. fixed. This is a 30 year loan except that the interest is only fixed for the first 5 years After 5 years the entire principal is due. There is typically an option to convert to a 25 year fixed rate based on market pricing at the time the balloon becomes due. There might be a minimal processing fee (typically $250) to obtain the new loan. The conversion rate is normally the FNMA 60 day rate + 0.5%. The conversion option may also be conditional upon: 1) Satisfactory mortgage payment history. 2) The borrowers must still be the owner occupant. 3) Secondary financing may not be allowed. This loan is also known as the 5/25, or 30 yr. due in 5. 30/7 Balloon with conversion option same as above replace 5 yr. with 7 yr., and 25 yr. with 23 yr.30/5/1 ARM. 5 yr. fixed followed by a 1 yr. adjustable for 25 yr. This is a 30 year loan except that the interest is only fixed for the first 5 years. After 5 years the loans becomes an adjustable. These loans typically do not have a balloon provision. 30/7/1 ARM. 7 yr. fixed followed by a 1 yr. adjustable for 23 yr. 30/10/1 ARM.10 yr. fixed followed by a 1 yr. adjustable for 20 yr. VA Loans: The U.S. Department of Veterans Affairs guaranties mortgage loans for veterans and service persons. The guaranty allows veterans to obtain home loans with favorable loan terms, usually without a down payment. VA loans are available.

The U.S. Department of Veterans Affairs does not make loans, it guaranties loans made by lenders. To obtain a VA loan you may locate a lender using Mortgage-Net. Lenders will normally require a Certificate of Eligibility before they can process a VA loan. This may be obtained by sending the form DD-214 to the local VA office along with VA form 1880.

Lenders offer 30 yr. fixed, 15 yr. fixed and 30 yr. adjustable loans under the VA program. The VA loan limit for 1996 is $207,000. The most attractive feature of a VA loan is that no down payment is required. In addition, it is easier to qualify for a VA loan than a conventional loan. This is because the loans are guaranteed by the U.S. Department of Veterans Affairs.

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Fixed Rate Loans

Fixed loans are generally amortized over 15 or 30 years. The interest rate remains fixed for the period of the loan. Fixed rates are most popular when interest rates are below 9%. When rates get higher homebuyers are unable to afford the higher payments required by fixed loans and may prefer to get an adjustable loan. A very popular program with first time homebuyers is the 30 yr. fixed loan with a 2-1 buydown. This loan has a lower rate for the first two years. For example a 8% 30 yr. fixed loan with a 2-1 buydown would have a 6% rate (8%-2%) for the first year, 7% (8%-1%) for the second year, and 8% thereafter.

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Non-Conforming Loans

A loan that does conform to the guidelines established by Fannie Mae or Freddie Mac is called a non-conforming loan. A loan that is larger than the conforming loan limit is called a Jumbo loan. Loans that do not meet the credit quality of conforming loans ('A' paper) are called 'B','C' and 'D' paper loans. Second mortgage loans - credit lines, home equity loans, home improvement loans are also non-conforming loans. Portfolio Loans Loans may be sold on the secondary market to Fannie Mae, Freddie Mac or a select number of conduits (e.g. GE Capital) or they are kept in the banks portfolio (e.g. American Savings Bank). Portfolio loans may have more flexible qualifying criteria, while saleable loans have to meet an investors criteria. Commercial Loans programs are for 5+ unit residential properties.

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