Understanding Mortgage Programs

• Fixed Rate Loans
• Adjustable Rate Loans (ARMs)
• Combination (Hybrid) Loans
• Balloon Mortgages and Pledge Asset Loans
• Jumbo / Construction Loans
• Reversible Mortgage

Conforming Loans
Conforming loans are conventional loans that meet terms and conditions set forth by Fannie Mae and Freddie Mac.

These two stock-holding companies purchase mortgage loans from lending institutions and secure them for resale to the investment community. Buying back mortgage loans allow these agencies to provide a continuous flow of affordable funding to banks that reinvest their money back into more mortgage loans.

Fannie Mae and Freddie Mac establish maximum loan amounts, income requirements, down payment requirements, and type of suitable properties. Loans that do not conform to these guidelines are referred to as non-conforming loans.

Jumbo Mortgage Loans
These are loans that are above the maximum loan amounts established by Fannie Mae and Freddie Mac. Rates on jumbo loans are generally a little higher than conforming loans. Jumbo loans are used to purchase expensive and high-end custom construction homes.

B/C Loans
Loans that do not meet the credit requirements of Fannie Mae and Freddie Mac are referred to as B, C and D paper loans. Loans of this type are made to applicants that have filed for bankruptcy, foreclosure and who generally have bad credit.

These loans are temporary loans until the applicant can qualify for conforming "A" loans. The interest rates on B/C loans vary, but are generally higher than conforming "A" loans.

Government Loans
Different governmental agencies will secure mortgage loans for low- to moderate-income and other qualified homebuyers. Lenders are required to follow certain guidelines when making government loans.

The most common government loans include FHA Loans, VA Loans, and RHS Loans.

FHA Loans
FHA loans have lower down payment requirements and are easier to qualify for than conventional loans. FHA loans are administered by the Federal Housing Administration, which is part of the U.S. Department of Housing and Urban Development.

VA Loans
VA loans are sponsored by the U.S. Department of Veteran Affairs. They guarantee loans for eligible veterans, active-duty personnel, and surviving spouses. These loans offer competitive rates, lower or no down payments, and minimum income requirement.

RHS Loans
RHS loan programs ensure affordable housing for low- to moderate-income level rural residents to purchase, construct, repair, or relocate rural-related facilities. Lower down payments, and sometimes none at all, are required. These loans are guaranteed by the U.S. Department of Agriculture.

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