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Mortgage Loan Programs

Which Mortgage Loan Program should you choose? That depends on many factors: your financial stability, the amount of free cash you have at the time of application and closing, the time you expect to spend in your house, and so forth. Also consider your personality: are you someone who needs the reassurance of a steady mortgage payment, even if it might be slightly higher?

A homeowner with a fixed budget, who is going to stay in their house for 30 years or more, might want to opt for a 30-year Fixed Rate Mortgage, especially since the rates lately are so low. On the other hand, a homeowner who anticipates changes in their financial future, such as a possible job relocation, and who doesn't mind the amount of risk involved, might do well to go with a 3 year Adjustable Rate Mortgage.

Different types of Mortgage Loans:

  • Governmental mortgage loans are any loans that are backed by the FHA (Federal Housing Administration), the U.S Dept of Veterans Affairs, or the RHS (the Rural Housing Service). Any other mortgage programs are known as conventional loans. Conventional loans usually fall under the category of conforming or non-conforming.
  • Conforming loans are defined by parameters set down by the Fannie Mae and Freddie Mac companies. These underwriting standards ensure that lenders often follow the same guidelines and so generally offer about the same rates to their consumers. The Fannie Mae is a private shareholder company that is not a lender, but rather the nation’s biggest source of financing home loans. They are insured by the FHA and are one of the largest financial corporations worldwide. Freddie Mac is also a private company, though much smaller. Both of these private financial corporations buy single and multiple family loans from mortgage lenders that meet the preset down payment, income and credit requirements.
  • Non-conforming loans, also known as "sub-prime" loans, follow no such guidelines. They are high-interest mortgages for those with blemished credit reports and lower credit grades. If this is the case, then comparison shopping should be kicked up a notch, because lenders fees and rates will vary greatly for often the same mortgage programs. Sub-prime customers can save money by providing as much documentation as possible. It may be tempting to omit information, but this will only cost you money in the long run. Potential loans fall into three categories: full doc, simple doc, and no doc. Full doc is being able to accout for all of your income, including W-2's, tax returns, pay stubs, etc. Simple doc is using bank statements to verify income, and no doc is little or no documentation. A no doc rate will often have an interest rate that is a full point over simple doc.

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