Mortgage Loan Programs

Federal Housing Administration Loans were originally designed by the government to help low and moderate income families by allowing for a lower down payment.  Today, FHA loans are used for income families across the spectrum.  FHA Insures Lenders against default by borrowers. Mortgage Insurance is required no matter the amount of money that is being used toward the down payment. FHA loans are used in conjunction with most HUD approved Down Payment Assistance Programs. Currently, the required down payment for a FHA loan is 3.5% and the seller can pay up to 6% of closing cost on the buyer’s behalf.

This FHA type of loan can be used to acquire and “fix up” the property of your choice. This loan combines acquisition and improvement into one single loan, one payment, and one interest rate. The costs of improvements are funded in incremental payments as needed by the contractor. The 203k full will be used for improvement prices above 35k and will be required to have a FHA 203k inspector involved. The 203k streamline will be used for improved prices below 35k and does not require the use of a 203k inspector. Both programs consist of a 3.5% down payment and will allow the seller to pay 6% of the buyers closing cost.

This program is a variation of the fixed rate mortgage. A buyer and seller can negotiate to pay the Lender a sum of money at closing to reduce the buyers monthly payment (interest rate) initially. The interest rate for the two year period might be 6.5% as an example and it is bought down to 4.5% the first year and 5.5% the second year. This enables the first time homebuyer to qualify for a larger mortgage the first year. The second year is still affordable with an addition of only 1% interest with the third year reaching the rate 6.5% which will remain the fixed rate for the term of the loan.

The Adjustable Rate Mortgage was developed in the late 1970s. This program quickly became popular because of the low initial payment. The ARM payment will adjust throughout the term of the loan. This program contains monthly payments that are not fixed and are subject to changes in the interest rate as a result of a pre-determined index ( 1, 3, or 5 years as an example). This loan has three characteristics. Initial Interest Rate – the interest rate offered at the beginning of the ARM loan. Interest Rate cap – A limit placed on the amount that an interest rate can increase or decrease during any adjustment period. Conversion Clause – Allows the borrower to change the ARM to a fixed rate loan at some point during the term of the mortgage.

Standard product used by most lending institutions. Years ago conventional loan required 20% down. Now conventional loans are more flexible and do not require a large down payment. Typical down payments will range from 3% – 5% for most Conventional loans. There are no fluctuations with the payment and will be consistent throughout the term of the loan.

This program allows you to make payments toward the interest on your loan only. The principle would not be decreased during the term of the loan. Payments are usually lower as compared to a Principle and Interest payment. This program can be offered in conjunction with a 30 year term, 20 year term or a 10 year term ( after 10 years the note would change to a principle and interest payment).

This Conventional Product will combine construction loan parameters with long term permanent financing. A construction loan usually runs from 4 to 12 months and is designed to finance the construction of a new home. (New home complex or builder site) It differs from a permanent loan, which normally runs from 15 to 30 years. With a construction-to-permanent loan there is one closing, but two objectives are met: (1) a loan is obtained to cover the building of the structure, and (2) the long-term financing is secured. When the construction phase has ended, the loan covert to permanent financing. A construction-to-permanent loan is most often granted when land is owned outright.

This Conventional Product will span the gap between the end of one loan and the start of a brand new loan. The most common use of a bridge loan is to obtain the equity from a current residence to use for the down payment or closing cost for a new home. After the new home has been settled, the bridge loan would be satisfied through the sale of the old property. Bridge loans are typically for six-month terms with a renewal option for another six month.

The interest rate on Reverse Annuity Mortgages can be fixed or adjustable. This loan is due when the home is sold or upon death of the borrower.  A reverse annuity mortgage is attractive to borrowers on fixed incomes who need the equity to supplement their monthly incomes while continuing to own, live in and maintain the property. With this mortgage, the lender appraises the home and offers a loan based upon a certain percentage of the home’s current value. The payments are made directly to the borrower by the lender. The lender becomes due upon a specific date, or the sale of the property, or the death of the borrower, whichever comes first.

With this type of quasi loan, the borrower makes payments without possessing the title or ownership. The title is not conveyed until a certain number of payments are made or the property has been refinanced. The borrower has equity interest only. If one payment is missed, the borrower could lose the property. This agreement was popular when interest rates were high and homes were sold with loans that could not be assumed.

The Energy Efficient Mortgage (EEM) has been around since the late 1970s. With an EEM, the borrower increase the mortgage loan by as much as an additional $8,000.00 to install energy conservation measures such as storm windows, solar panels and automatic thermostats. The loan payments rise accordingly, but the borrower’s savings on the utility bills over the life of the loan normally equal or surpass the installment costs. The improvements can also raise the resale value of the home, and in some cases, can raise property values.

This government loan allows buyers to purchase a home with no money down. This 100% down financing program is geared toward purchases of homes in certain rural areas. There is a funding fee, similar to VA and FHA that will be financed within the loan. This program also allows the seller to pay up to 6% of the buyers closing cost.

The Home Purchase Assistance Program (HPAP) enables lower-and moderate-income individuals and families to purchase affordable housing in Washington, D.C. Qualified HPAP applicants can receive up to $80,000 in financial assistance to purchase single-family houses, condominiums and cooperative apartments. HPAP funds can be used for down payment and/or closing costs. The HPAP Purchase Assistance is in the form of low interest 5 year deferred loan. Loan amounts are determined by a combination of factors, including income, household size, and the amount of assets that an applicant can commit toward the purchase price of a home. In addition, all loan recipients are required to maintain their properties in compliance with D.C. Housing Codes.

The Community Development Administration program is for first time homebuyers and will assist with the down payment and closing cost. Income restrictions are more flexible as compared to other grant programs. Funds from this program can be used for down payment and/or closing.