Mortgage options for homebuyers

For first-time buyers or even repeat buyers, figuring out what all your martgage options are can be daunting. Especially if you are pressed for time to make a commitment after drafting a home purchase agreement. Here you will find an overview of the available mortgage products. I’ve added general loan terms from mortgage lenders.

-Affordable Housing Loans: Umbrella term for various loan products aimed at first-time homebuyers.

-Assumption loan: existing mortgage loan that can be assumed by another person; most conventional loans are unacceptable; Government loans are transferrable if the new person is qualified.

-Biweekly Mortgage: Half of the mortgage payment is paid every two weeks, resulting in an additional full principal payment each year.

– Lump-sum mortgage: Mortgage secured by more than one property.

-Blended Rate (or Wraparound) Mortgage: Refinance plan that combines the interest rate on an existing mortgage loan with the current interest rate on an additional loan amount.

-Bridge (or Swing): Loan used to bridge the gap when someone buys a new home before settling on their previous home.

-Budget mortgage: another name for a loan that includes taxes and insurance along with the principal and interest payment (PITI).

-Installment purchase (also called land contract): usually a private agreement between seller and buyer, where ownership is not transferred until all payments have been made.

-Carry-back financing: Whenever a seller agrees to finance either the first or second mortgage on the property.

-Chattel Mortgage: a pledge of personal property to secure a note.

-Home loan: Short-term loan during the construction of a house.

-Home loan: either a lump sum or a line of credit made against the equity of a home.

-Interest Only: Your monthly payments only cover the interest on your mortgage loan. Your payment does not include principal payments to create equity. In a market that is transitioning from a seller’s to a buyer’s market, you could lose money selling your home.

-125% Loan: A loan product where you actually borrow 25% more than the cash value of the property you are buying. If you have to sell the property in the first few years, you’ll be upside down with the mortgage and owe more debt than you can sell the house.

-Perpetual Mortgage: A mortgage where additional funds can be borrowed without changing other terms of the mortgage, which is typical of home loans.

-Package Mortgage: Mortgage secured by a combination of real estate and personal property; Commonly used for vacation properties such as cabins, beachfront condos, or ski chalets.

-Portable mortgage: new concept; Mortgage loans can be taken from one property to another.

-Purchase mortgage: any loan used to purchase the property that serves as security, but usually relates to financing held by the seller.

-Reverse Mortgage: Special program for seniors (62 or older) that uses the equity of the retirement home to generate additional income without having to sell the home.

-Subprime Loans: Loans with risk-based pricing for individuals who cannot qualify for prime conventional loans; usually has a higher interest rate; Credit scoring and evaluation are vital.

Mortgage Conditions.

-Mortgagor: the party receiving the mortgage, the lender.

-mortgage lender: the party granting the mortgage, the borrower.

-Mortgage: Document that establishes property as security for the repayment of the mortgage loan debt.

-Note: a written promise to repay a debt.

– Deed of Trust: Document giving legal title to security for the mortgage loan debt to a neutral third party. The choice of whether to secure the loan with a mortgage or a trust deed depends on local law.

-Default: non-compliance with the terms of the contract; The most important concept is the agreement of regular payments.

– Loan-to-Value (LTV): Percentage of what the lender will lend divided by the market value (e.g. a $200,000 property with a 90% LTV means the lender has 90% of the value or $180,000 and Requires a 10% deposit or $20,000 from the borrower.

-Eligibility Ratios: the percentage of gross monthly income that is eligible from various loan programs.

o Front End Ratio is the allowable amount for total housing expenses.

o Back-end ratio is the amount allowed for total debt. Example: Fannie Mae/Freddie Mac ratios are 28/36 or 33/38 for affordable credit. FHA ratios are 29/41.

-Points: Each point corresponds to 1% of the loan amount. Lenders often charge a 1% lending fee. Additional points can be calculated to discount (lower) the interest rate.

-Buy-down: a cash payment to the lender that lowers the interest rate; a marketing technique often used by new home builders. Example: Selling a property for $200,000 with a 2:1 buyback. The interest rate for the first year is 4%, for the second year 5% and the term of the loan is 6%.

-PITI: Usual components of a mortgage loan: principal, interest, taxes and insurance. The payment is applied first to the principal, then to the interest. Taxes and insurance are paid from an escrow account. Interest and taxes are tax deductible.

-Principal amount: the balance of the original amount borrowed.

-Interest: the amount charged by the lender for using the amount borrowed.

-Conventional loan: any mortgage loan that is now government insured or guaranteed.

-Government Loans: FHA-insured or VA-guaranteed loans.

-Compliant loan: conforms to Fannie Mae/Freddie Mac guidelines.

-Non-Compliant Loan: Does not meet Fannie Mae/Freddie Mac guidelines.

– Jumbo loan: one that exceeds current Fannie Mae/Freddie Mac credit limits.

-First Mortgage (or Trust): the primary loan placed on the property.

-Junior or second mortgage (or trust): second loan sometimes used in conjunction with the first mortgage or placed sometime after the first mortgage is completed; like a home loan.

-Portfolio lender: someone who keeps and continues to service the mortgage loans in-house.

-Prepayment Penalty: a fee charged by the lender if you wish to repay part or all of the balance due before the scheduled end of the term; Penalty Not Allowed for Conforming or Government Loans; most commonly seen in jumbo loans and ARMs.

-Negative amortization: occurs whenever the monthly payment is insufficient to cover the interest expense for that month, with the additional amount being added to the principal balance; results in an increasing principal balance rather than a decreasing principal balance as occurs with a fully amortized loan.