In the past, people who wanted to buy a home had few options for mortgage loans. There are so many choices these days that it's hard to know where to start. Here are the basics.
Mortgage Loans
Since the real estate market has grown so much in the last 10 years, people are looking for new mortgage loan programmes. Bankers have been more than glad to answer the call. Traditional mortgage loans still work for a lot of people. Here's how to start.
Conforming Loans: These loans meet the rules set by Fannie Mae and Freddie Mac, two government-backed companies that buy and sell loans from mortgage lenders. These groups have strict limits on the size of the loans they will buy. For single-family homes, the mortgage limit is around $360,000. With the real estate market doing so well, many places like San Diego don't even come close to fitting into the conforming loan market. This is because the average home price there is around $600,000.
Non-Conforming Loans: Also called "Jumbo Loans," these mortgages are written for loans that are more than $360,000. The interest rates are usually a bit higher, but they are easy to get.
- Bad Credit Loans: In the mortgage business, a borrower's "paper" is a term used by mortgage brokers. This paper talks about people who don't have the best credit. "B" paper is used to talk about small problems, while "D" paper is used to talk about bigger problems, like filing for bankruptcy. The worse your credit, the more interest, points, and down payments you can expect to pay. You need to think carefully about whether it makes financial sense to pay these extra fees.
Rates of interest
For each of the above loans, you can choose between a fixed interest rate or one that changes over time. Fixed interest rates just set a single rate of interest that will be charged for the entire loan period. Most of the time, adjustable rates start out lower than fixed rates, but they can go up to reflect changes in how much it costs to borrow money. You are betting in many ways on whether or not interest rates will go up in the future.
Most people still find that basic mortgage loan options are enough when they need to borrow money. Don't worry if it's hard for you to get these loans. There are a lot of other choices out there now.
