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Common Loan Types and General Characteristics
Choosing the right loan requires you to review your financial objectives and to ask a host of questions, such as:
- How long do I intend to occupy the house?
- What is my tax bracket?
- How much money do I have for a down payment?
- Is it important to pay off the mortgage early?
- Can I or should I make extra principal payments?
- Do I want a level payment or a variable payment mortgage?
- Should I finance the closing costs with my loan?
- Is my projected income likely to remain stable?
These questions are important in the loan selection process. Mortgage consultants such as myself or other financial advisors can help you to make a more informed decision.
Fixed Rate Fully Amortizing Loans: In this type of mortgage, the interest rate and monthly payments are fixed for the term of the loan. During the early years of the loan, the bulk of the monthly payment is used for paying the interest. As the loan is paid down, more of the monthly payment is applied toward the reduction of your principal balance. A typical 30-year mortgage takes 22.5 years to pay half of the original loan amount, and an additional 7.5 years to pay the balance. The most common fixed rate loans are 15- and 30-year mortgages.
Balloon Loans: Balloon loans have fixed monthly payments that are generally based on a 30-year amortization, followed by a full payoff. The most common balloon loans mature in 5 or 7 years, at which point the borrower is required to pay to the lender the balance of the loan in full. This can be accomplished either by refinancing with another lender or selling the property. Occasionally borrowers are allowed to convert the mortgage to a new fixed loan for the balance of the 30-year term. The new interest rate is determined by the state of the market at the end of the balloon period. These loans are commonly called two step mortgages and referred to as 5/25 or 7/23. All payoff options are disclosed to the borrower before signing the original loan documents. The interest rate on balloon loans is always lower than 30- and 15- year fixed mortgages, resulting in lower initial monthly payments.
Adjustable Rate Mortgages (ARMs): With these programs, the interest rate adjusts periodically based on an established index, such as the 1-Year T-Bill, 6 month LIBOR, 6 month certificate of deposit (CD) or the 11th District Cost of Funds (COFI). On each anniversary date of the loan funding, an adjustment to the interest rate is made. This adjustment is reflected in a new monthly payment. The new interest rate is determined by the lesser of two values: the sum of the original margin and new index value, or the sum of the original interest rate and annual cap. The interest rate will never exceed the life cap.
Jumbo Loans: Loan amounts exceeding the Federal National Mortgage Association.
Conforming Loans: Loan amounts not exceeding.
Convertible ARMs: This 30-Year amortized loan has characteristics of both fixed and ARM programs. For the first 3, 5, 7 or 10 years, the interest rate is fixed. After the designated period, the loan converts into a typical ARM in which the margin, annual and life caps are determined and disclosed at the inception of the loan.
FHA Loans: Federal Housing Administration (FHA) loans are sponsored by the U.S. Government and managed by Housing and Urban Development (HUD). The majority of the programs are designed for first time home buyers and low to moderate income borrowers. FHA offers fixed rate loans as well as ARMs. Maximum loan amounts vary based on the metropolitan area and are established by FHA. Down payment requirements are generally less than conventional loans.
VA Loans: Veterans Administration (VA) loans are sponsored and managed by the U.S. Government. The VA establishes the maximum loan amount and eligibility requirements. Qualified borrowers can finance up to 100% of the purchase price, which means that there is no down payment required.
State and Local Housing Programs: The majority of these programs are fixed rate mortgages provided by the state, county or city. These programs are primarily designed to assist first time home-buyers and have interest rates lower than the current market. Restrictions such as purchase price limits and gross annual income limits vary from county to county.
The following are just a few of the many loan and refinance programs we offer. As you can see, we have an extensive array of flexible programs which ultimately means we can find the best loan for you.
- 30/15 Year Fixed; Conforming and Jumbo
- 40 Year Loans
- 1,3,5,7 and 10 Year Fixed Rate Loans
- A- through D Paper Loans
- 100% and 125% Purchase Program (No Money Down)
- 2-1 Buydowns
- Purchase 80%/15%/5% and 80%/10%/10%
- 90%, 95%, 100% and over 125% Loan to Value
- 90% Self Insured
- 90% Multi-Family Unit Loans
- 90% Cash Out
- Non Owner Occupied Loans
- Super Jumbo Loans
- Interest Only Loans
- Construction Loans
- Quick Qualifier and No Documentation Loans
- Loans for those with Less-Than-Perfect Credit
- Cash Card Pre-Approval
- Zero Point with Lender Paying All Closing Costs
- Mixed Commercial Financing
- Apartment Financing
- FHA/VA Loans
- Adjustable Rate Mortgages tied to all indices
- Loans for Foreign Nationals
- Commercial Loans
- Land Loans
- Swing Loans
- Equity Loans
- Community Homebuyer Loans
PGM USA Loans for special situations
Pacific Guarantee Mortgage recognizes the need to find loans for borrowers that don't fit "cookie cutter" guidelines. We have developed many loan sources for the "non-conforming" borrower. We believe that there is a loan for virtually every borrower. Things like divorce, loss of a job, medical problems or other issues can result in late payments or even bankruptcy. By representing many different and unique sources of home financing we can make sure that we match our borrowers' special situation to the right loan product. We even have loans (subject to loan-to-value limitations) that don't even ask for a credit report!
Some of the Programs We Offer Are:
- Purchase/Refinances to 100% LTV
- Stated income to 90% LTV
- Our "Know Nothing" Process
• We just need an application and an appraisal!
- 125% Loan to Value for Purchase only
• With this program you can purchase a home and pay off your debt, make home
1. What is a "portfolio" loan?
This is a loan made by a bank or originator which is held by the institution in its own portfolio of investments, collecting monthly payments until the loan is paid in full. Nowadays, the majority of home loans are not held "in portfolio" but are sold to other financial institutions or the secondary market.
2. What is the secondary market?
The secondary market is made up of organizations that buy and recycle loans from banks and other lending institutions. The primary organizations of the market are the Federal National Mortgage Association (FNMA or Fannie Mae), the Government National Mortgage Association (GNMA or Ginnie Mae) and The Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac).
Fannie Mae
3900 Wisconsin Ave., NW
Washington DC 20016-2899
Freddie Mac
P.O. Box 723788
Atlanta GA 30339
Ginnie Mae
451 7th St., SW
Washington, DC 20410-9000
3. What is a credit check and who performs them?
A credit check is a printed record of your financial history regarding payments on loans and debts. A credit report will include such items as your date of birth, address and place of employment and a list of all creditors who have reported your history to the bureau. Lenders are required to request two credit reports from two different sources. The nationally recognized companies that provide these reports are TRW, The Chilton Corporation, Trans Union, Associated Credit Services, Associated Credit Bureau Services and Credit Bureau, Inc. The credit check will cost you $50.00
4. What disclosures are lenders required to make?
The U.S. Dept. of Housing and Urban Development (HUD) requires a full disclosure of virtually everything pertaining to your loan. This document is called a settlement statement. The statement includes things such as the gross amount of your loan, a list of taxes and deposits, and a record of any and all money due or exchanged by the buyer or the seller. If the loan is an ARM, the lender must also provide a predictive break-down and accounting of how the loan will perform.
5. What is PITI?
PITI (Principal, Interest, Taxes and Insurance) is your monthly payment.
6. What is long-term installment debt?
Any debt that cannot be paid off in ten months.
7. What are the current Fannie Mae and Freddie Mac conventional loan limits?
$214,600 for single family dwelling
$274,550 for 2 units
$331,850 for 3 units
$412,450 for 4 units
Loans amounts greater than these are called Jumbo Loans.
8. Why do I need Private Mortgage Insurance (PMI)?
PMI protects the lender if a default should occur. PMI protects the lender for the 20% of the mortgage against default allowing the lender to see the home below market value to recoup the money borrowed. Generally, if you put down more than 20%, you won't need PMI.
9. Where do I get PMI?
You can shop for PMI just like any other insurance to find the best rate. Refer to the list of Mortgage Insurance Companies of America.
10. What is a drop-out Lender?
A lender who specializes in high-risk buyers that "drop out" of qualifying guidelines.
11. What is seller financing?
When the seller finances all or part of a real estate purchase.
12. What are the primary institutions and sources of money and mortgages?
The primary sources of money for real estate transactions are Savings & Loan associations, Commercial Banks, Mortgage Bankers, Mortgage Brokers, Credit Unions, Pension Funds, and the secondary market.
13. What is the advantage of using a mortgage broker for my home loan?
Since mortgage brokers usually deal directly with the investors, we often provide the most competitive rates.
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