What type of loan?

When applying for a loan the first objective is to get your loan approved – then what type of loan you can get usually depends on your credit score,:

If you have excellent    800 – 720

If you have good          719 – 660

If you have fair             659 – 620

If you have bad            619 -- 400 

If your credit scores are above 620 you may be able to get a loan that conforms to government guidelines but you may not be able to get 100% financing. If so, the amount you borrow on a single loan will require you to pay PMI (Private Mortgage Insurance) on the loan, requiring a monthly payment on the PMI insurance policy to guarantee payment of the loan – this insurance policy payment is not deductible from either principal or interest.

Regardless of your credit scores, there can be problems that affect your interest rate that normally require non-conforming or sub-prime lenders. Some of these problems are:

·        Bankruptcy or Foreclosure within the last seven years.

·        Repossession.

·       Charge off accounts, accounts turned for collection (even one collection or charge-off, regardless of how long ago).

·       Insufficient income - income not verifiable and/or self employed with not enough taxable income.

·        Not verifiable rent or mortgage payments.

·        Not enough open lines of credit.

And the problems that are the hardest to get resolved are:

·        Tax liens

·        Unpaid child support

·        Judgments

·         Student loans that are past due or turned for collection.

Any or all of these items can be attached as liens on your property. However, with a lot of effort from our loan officers we can find some lenders that will still close on a 100% loan for the home purchase - that is if these issues do not affect title of the property prior to your purchase. Yes, our loan officers can work what seem to be “miracles.”

NOW, all this has total bearing on the lenders decision as to what LTV (loan to value) they will loan –100% ,95%, 90%, 85% or 80%. The lender will decide what interest rate they will offer you, and will your loan be a fixed interest rate or will they only offer an ARM (adjustable rate mortgage). Our loan officers will do what is required to get you into your own home and the ability of our loan officers to apply creative financing with our 70 or more lenders' different loan programs often makes the loan work so you can close on your home loan.

This is where your decision must be made: 

• What interest rate and what monthly payment can I afford?
• How long will I live in this house?
• Will I make more money in the future and want a more expensive or larger (or smaller) house?
• Should I take a lower interest rate and refinance in a few years?
• Will my credit score be better in a few years?
• Will the interest rate go higher or lower in the future?

The ARM is usually offered at a lower interest rate at about 1% to 1.50% and can be fixed for 2, 3 or 5 years.  Normally the rate goes up after the fixed period. But, you have saved quite a bit of money over this fixed period and hopefully your credit scores will be higher so that, if you choose you can refinance your loan and get a better interest rate. Or you can sell the house and buy a different house in a different location, or a larger house.

With a fixed rate your payment will stay the same for the life of the loan. If you plan to stay in this house for a number of years it is best to get a fixed rate – that is if your debt ratio is not too high and you can make the higher monthly payment.

As you see on television, radio, newspapers and every other form of advertising, there are many different types of financing. There are conforming lenders (conform to government guidelines), and non-conforming or sub-prime lenders (many unique programs and guidelines). Whatever lenders can imagine, they can usually come up with a program that will fit the buyer’s requirements of today. Rates are determined by the lenders - anywhere from 5% to 12% based upon what program a lender offers and their lending guidelines.  There are minimum and maximum amounts that lenders will loan. The credit score and income are usually the most important issues in determining what percent of the purchase price the lender will loan - 100%, 95%, 90%, 85% or 80%.

·        2/28 - Fixed for 2 years and an ARM for 28 re-adjusts every 6 or 12 months.

·        3/27 - Fixed for 3 years and an ARM for 27 re-adjusts every 6 or 12 months.

·        5/1 -  Fixed for 5 years and an re-adjustable ARM every 6 or 12 months.

·        Interest only - may terminate in a few years if there is not enough equity in the property.

·        Less than interest only – usually only on less than 70% of the value of the property.

·        80/20 - 100% loan with an 80% first mortgage and a 20% second mortgage from the lender, from the seller or a gift from a family member.

·        95/5 – 95% loan and borrower must have 5% of their own money.

·        30/15 - a 30 year mortgage but must be paid in full15 years or refinance the balance.

·        15 year, 20 year, also 40 year, 50 year mortgages.

·        15 year fixed for 5 years and then readjusts every 5 years (if all payments are made on time and your income and credit score are still high and whatever slsethe lender requires.) If any negative situation occurs, the note is usually called and must be refinanced based upon your current credit-income-debt . These are usually banks-type loans and are very risky, as the loan may be called at the whim of the lender.

·        There are many methods of financing and many types of loans, but the one thing to remember is that principal payments can usually be made at any time and in any amount. Some loans have a prepayment penalty if paid off early; such as in the first 2, 3 or 5 years but you will know this and the terms before you close on the loan – this prepayment penalty helps lower your interest rate and usually can be bought out, but your interest rate will be higher.