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Best
Loan Program
Loan programs come in many forms
and come from many sources, choosing the best loan program really is not just a
simple choice. Just as the loan structure, like a 30 year fixed rate
mortgage,
can affect your interest rate and
monthly payments, the source of funding for your loan can also affect your rate
and payments. The source of funding can also affect the amount of your down
payment and closing costs.
If you have at least 3% of the loan amount to use as a down payment, you may
consider the most common type of loan, a
conventional loan. These loans consist of conforming loans, which are
secured by government sponsored entities (GSE) such as
Fannie Mae and Freddie Mac, and
jumbo loans, which are funded by private investors for loan amounts higher than
the limits set by the GSE's.
Conforming loans are funded by
Fannie Mae (FNMA) and
Freddie Mac (FHLMC). These companies do
not lend money directly to you, but work with lenders across the country to
offer
mortgage loans to meet your needs. As a
secondary market for mortgage loans, they purchase mortgages from lenders
and package them into securities that can be sold to investors.
If you are looking for a large loan amount to purchase or refinance your home,
you could consider a jumbo loan, which
has a higher loan amount limit than the limits set by Fannie Mae and Freddie
Mac. Because jumbo loans cannot be funded by these two agencies, they usually
carry a higher interest rate.
The federal government and other state, local and private entities have
developed programs to help you purchase a home with a
low down payment. If you are a first
time homebuyer or have low to moderate income, you may be eligible for a
mortgage
insured by the Department of Housing and Urban Development (HUD)
through the
Federal Housing Administration (FHA). While FHA does not make or buy loans,
they insure FHA loans so that if you
default on the loan, the lender will get reimbursed. You may be able to get an
FHA loan with a low down payment of only 3% of the loan amount or less. While
there are limits to the size of FHA
loans, they are generous enough to handle moderately priced homes almost
anywhere in the country.
If you are a veteran or qualify by military service or other entitlements, FHA
mortgage insurance can also be combined with a guarantee from the Veteran's
Administration. VA mortgages were created to help veterans achieve the American
dream and buy their own homes. VA loans
offer low to no down payments with many of the same benefits as an FHA loan.
If you have bad credit, you may not
qualify for a conventional loan. In this case, you could consider a
subprime loan. Like other loans,
subprime loans come in many forms based
on the terms, loan amount and loan to value ratio you are looking for. In
addition companies will look at your credit and give you a credit grade, which
will help them determine the best loan for your situation. With less than
perfect credit, you can expect to pay higher interest rates because of the
higher risk associated with making a
mortgage loan to someone with a poor credit history.
Mortgage Glossary9
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