Types of Mortgage Loans - Schlumberger



Types of Mortgage Loans

Loans for less than $417,000. Also known as “Conforming”.

Down Payment can be from 5% to any amount.

Loans for more than $417,000.

Two Loans: The first lien is at 80% of the sales price at market rate for 30 Years. The second is typically a 15 year note for 5, 10, 15 or 20% at a higher rate. Since the first lien is at 80%, no mortgage insurance is required.

An FHA loan has a minimum down payment, 2.25%, and the seller must, if they accept a contract specifying FHA financing, and agree to pay about $700.00 of the buyer’s closing costs.

VA Loans are available for qualifying Veterans. These loans are 100% loans and the seller, if accepting a contract with a VA loan, must agree to pay about $900 of the buyer’s closing costs.

100% to 103% financing is available to borrowers with very good credit

Fixed Rate Mortgages have an interest rate that is fixed for the term of the loan.

Adjustable Rate Mortgages aka ARMs. These loans can be either Conventional or Jumbo, and have a fixed interest rate for the first 1, 3, 5 or 7 years. The initial rate is lower than the market rate for fixed rate mortgages. After the initial fixed term, these rates can adjust upward or downward, depending upon the mortgage market at the time. An often used index for ARM rate adjustment is the US 10 Year Treasury Bond, often known as the “T Bill” or the “Long Bond”. The yield on the Treasury Bond drives the mortgage interest rates.

“Caps”: The normal maximum your rate can go up or down in one year is 2%, with a lifetime cap of 5-6%.

There are many different types of ARMs and many different indexes and caps. Approach with caution.

Amortization Period: Most mortgage loans have a 15 or 30 year amortization period, but there are 10 and 20 year loans available as well.

|Loan Type |Down Payment |Advantages |Disadvantages |

| | | | |

|Conventional 30 Year |0-15% |Your payment is fixed for 30 Years. |Mortgage Insurance is Required. |

|Fixed Rate | | |You must escrow your taxes and insurance |

| | | |with the lender and must deposit monies |

| | | |equal to 2 months hazard insurance and 3 |

| | | |months of property taxes at closing. |

|Conventional 15 Year |0-15% |Your payment is fixed for 15 Years. |Mortgage Insurance is Required. |

|Fixed Rate | |The interest rate is generally.5% lower than the|You must escrow your taxes and insurance |

| | |30 year rate. |with the lender and must deposit monies |

| | | |equal to 2 months hazard insurance and 3 |

| | | |months of property taxes at closing. |

| | | |Your monthly payment is about 36% higher |

| | | |than on a 30 year mortgage. |

|FHA Loans |2.25% |Very low down payment. |Maximum Loan Amount in Most Texas counties |

| | |Qualifying for the loan is easier. |is $200,160. |

| | |Seller pays about $700 of your closing costs. |Mortgage Insurance: |

| | |You must have at least 3% in down payment and | |

| | |closing costs, so you can negotiate with the |You pay mortgage Insurance in two forms: |

| | |seller to pay most of your closing costs and |1.5% of the loan amount is charged at |

| | |pre-paid items. |closing and can be added to the loan amount |

| | |Interest rates are favorable: about the same or|and you pay 1/12 of .005% of the loan amount|

| | |a bit lower than prevailing conventional rates. |each month in your payment. The monthly MI |

| | | |is included in your payment for the life of |

| | | |the loan. |

|VA Loans |-0- |No down payment makes this a great way to get |You must satisfy certain requirements in |

| | |into a home. |length of continuous military service to be |

| | |The seller, in accepting a VA contract, agrees |eligible. |

| | |to pay about $900 of your closing costs. |There is a VA “funding fee” of 2.15% of the |

| | |Interest rates are favorable: about the same or|loan amount that is added to the loan at |

| | |a bit lower than prevailing conventional rates. |closing (3.3% if you have used your VA |

| | | |entitlement previously. This is fine as long|

| | | |as the market is good and values are |

| | | |increasing, but can be troublesome in a |

| | | |declining market when you might actually owe|

| | | |more on your home than it is worth when time|

| | | |to sell. |

|Tandem Loans |5%, 10% 15%, or |An 80% first lien and a 20%, 15%, 10%, or 5% |You must have good credit scores and |

| |20% |second lien allows you to avoid mortgage |adequate income to qualify for this type of |

| | |insurance, and decide, if you wish, not to |loan, since the second lien holder has |

| | |escrow with the lender. |virtually no security. |

| | |The payment comparable to a loan with mortgage | |

| | |insurance. | |

| | |Since the second lien is typically for a smaller| |

| | |term, you are paying off the principal faster, | |

| | |and can develop equity sooner than you would if | |

| | |spending the money on mortgage insurance. | |

|Jumbo Loans |Minimum of 5% |Allows you to borrow more than $417,000 |Interest Rates are Higher, from .5%to .625% |

| |Down | |Credit Requirements are stiffer. |

| | | |With less than 20% down, you pay mortgage |

| | | |insurance and escrow with the lender. |

|100% and 103% Financing |-0- and with |You need little or no money to get into a home. |Interest rates are higher (normally ½ of 1%)|

| |103% most of |This is great if you either do not have the |Mortgage Insurance is High. |

| |your closing |money or wish to use it in another way. |You must have excellent credit. |

| |costs are paid | | |

|Adjustable Rate Mortgages ARMS |Minimum 5% |Initial Interest rate is considerably lower than|Uncertainty is the biggest drawback. |

| |Fixed to 1, 3,5 |any of the conventional products. |An interest rate that started at 4.5% for |

| |7, or 10 years, |Based on the lower rate, a buyer can qualify for|the first year could climb to 6.5% the |

| |then adjusts |a larger mortgage with the ARM. |second, 8.5% the third and to 10.5% the |

| |annually |If you are with a company that routinely |fourth. |

| |thereafter |transfers you every 3-5 years, this is an |If your income and other debts are such that|

| | |excellent product. |you could not withstand a $125.00 per month |

| | |Normal adjustment maximums are set: 2% per year|increase from Year One to Year Two, or a |

| | |and 5-6% for the life of the loan. |$262 increase from Year One to Year Three, |

| | |Questions to Ask: |this is not a good loan for you. |

| | |What is the Index? | |

| | |What is the Margin? (normally 2.75% over the | |

| | |prevailing index rate) | |

| | |What are the annual and lifetime caps? | |

This is by no means all of the mortgage products available, but should give you a working knowledge. A competent and fair loan officer will ask the right questions and guide you to the best product based on the down payment you have, the size monthly payment you are comfortable with, and the number of year you plan to live in the house.

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