Mortgage Programs for Homeowners and First Time Homebuyers | Loanbiz

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Types of Mortgage Programs

There are two types of mortgage programs: fixed rate programs or adjustable rate programs. Within those two mortgage types, there are several variations: government-backed loans, jumbo loans, balloon programs, and various length programs.

30 Year Fixed Rate Program

With a 30 year fixed rate program, the interest rate and mortgage payment remain fixed throughout the life of the loan (360 months). A 30 year fixed rate mortgage is the most popular of all of the residential mortgage products and is available for conventional, jumbo, FHA, and VA loans.

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15 Year Fixed Rate Program

Like a 30 year fixed rate program, a 15 year fixed rate program has an unchanging interest rate and monthly payment throughout the life of the loan (this time, 180 months). Typically, people choose a 15 year fixed rate program over a 30 year fixed rate program for the lower interest rate, a quicker mortgage payoff, and savings of more than half the total interest costs. Unfortunately, a 15 year fixed rate program carries a much higher monthly mortgage payment than that of a 30 year fixed rate program.

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Adjustable Rate Program

An adjustable rate program differs in that the interest rate and the monthly payment are subject to adjustments, or resets. With an adjustable rate program, there is a generally an introductory or teaser period where the initial interest rate and monthly payment are low. Once the teaser period is over-- 1, 2, 3, 5, 7, or 10 years-- the loan goes through at least one reset a year where the interest rate changes. This interest rate change is based upon the initial margin and index that are outlined in an Adjustable Rate Rider document.

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Jumbo Programs

Jumbo loan programs are loans that exceed the maximum limit set by Fannie Mae and Freddie Mac. The 2008 limits remain at the limits set in 2006 and 2007-- $417,000 in the continental U.S., and $625,000 in Alaska, Hawaii, and U.S. Virgin Islands. Since jumbo programs are a lot less common than conventional (conforming) loans, they carry a higher interest rate.

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FHA Program

The Federal Housing Administration (FHA) does not provide mortgage loans directly to individuals-- they insure them for FHA-approved lenders. This insurance removes or minimizes default risk lenders face when borrowers put down less than 20 percent. In other words, FHA-backed loans helps lenders make it easier for low to moderate low-income families gain homeownership or refinance their current home loan.

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VA Program (Department of Veterans Affairs)

Like FHA, the Department of Veterans Affairs (DVA) does not provide mortgage programs directly to individuals-- they insure them for VA- approved lenders. VA loans are restricted to individuals that have served on active duty in the Air Force, Army, Coast Guard, Navy, or Marine Corps, and were discharged under conditions other than dishonorable. Visit the DVA website for further restrictions on eligibility. In addition to offering he 30 year fixed, 15 year fixed, and one year adjustable rate programs, the VA allows their eligible borrower a no-money down advantage for purchases.

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Balloon Programs

Balloon programs are short term loans-- typically five or seven years-- that are amortized as if they are a 30 year fixed program. After the short term expires, the remainder of the balance is due in one lump sum or "balloon payment". Typically before the balloon payment reaches maturity, borrowers refinance or sell their property. In most cases, balloon programs have a refinance or conversion option that will allow the borrower to convert over to a fixed rate program after the short term has expired.

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