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Loan Types


Before purchasing or refinancing, it is a good idea to understand the different types of loans available to you. There are basically two types of loans, fixed rate loans and adjustable rate loans.  Please see below for definitions of the different loans available. If you are looking to purchase or refinance and would like to get pre-approved, please click here to apply.

Fixed Rate Loans

With a fixed rate loan, the total loan payment (principle & interest) does not change for the life of the loan. Most fixed rate loans are available for 40, 30, 20, 15, or 10 years.  These loans are fully amortized.  This means that they will pay off by the end of the loan period.  These are the most stable of all the loans available since the interest rate does not change over the life of the loan.  The most common fixed rate loan is the 30 year amortized.


40 Year Fixed Rate Amortized Loan

This loan is the longest term available under the fixed rate loan options.  The payment on this loan is lower than the 30 year loan.  Many people choose this loan if they want a lower monthly payment that has a fixed rate.  This allows the borrower to qualify for a higher loan amount.  The negative on this loan is that you end up paying quite a bit more in interest over the life of loan because the term is stretched out to 40 years.


Interest Only Loans

Interest only loans are available under fixed rate programs and adjustable rate programs.  Interest only loans are not available under FHA or VA loans at this time.  Interest only loans allow the borrower to pay an interest only payment on the loan for a specified period of time, usually 10 years.  After the interest only period is up, the loan will amortized for the remaining period of time left on the loan.  The loan balance will not change or go down during the interest only period as it would on a fully amortized loan.  The benefit to this loan is that you would have a lower payment for the interest only period.  For more information please see click here for our Interest Only webpage.

Adjustable Rate Loans

Adjustable rate programs come in many different forms.  Some will be a fixed rate for the first 3, 5, 7, or 10 years and then change into an adjustable rate loan and some will start out from the beginning as an adjustable rate loan. There are also negative amortized adjustable rate loans.  Please see below for further details on that loan. You should always read your Promissary Note and Trust Deed when signing your loan documents to be sure you understand how these loans will adjust.  The benefit of adjustable rate loans are that the payments are usually lower for the fixed rate period than on a 30 year fixed rate loan.  The negative is that the payment can go up significantly after the fixed rate period.

Conforming Loans

Conventional loans may be conforming or non-conforming loans.  Conforming loans are loans that are usually purchased by Fannie Mae and Freddie Mac.  These two companies buy loans that comply with their set of  guidelines. Freddie Mac and Fannie also sets the maximum loan amount, credit requirements and property requirements that they will allow.  At this time, the conforming limit is at $417,000 for single family residences in high cost areas.  In the beginning of this year both companies expanded the type of loans they would buy and these are called Jumbo Conforming Loans.  These loans are priced a little bit higher than the loans that fall under the $417,000.00 loan amount.  Please call me for pricing and details.

FHA Loans

FHA loans are government sponsored loans.  FHA will go up to 96.5% LTV on purchases and no cash out refinances. They will go up to 85% LTV on cash out loans. FHA is available for a 30 year and 15 year fixed rate loan.  They also have buydown loans and adjustable rate programs.  The benefits to the FHA loan is that you can purchase a new home with a minimal down payment. They will consider loans for people that have no credit history and for people that have some credit problems, FHA does not have a minimum credit score requirement. However, in today's mortgage market, many lenders have put a minimum score requirement of 620 for FHA loans.  Also, the mortgage insurance is usually lower than a conventional loan and the seller can pay up to 6% of the purchase price toward your closing costs.  Click here to get pre-approved for an FHA loan.

Jumbo Loans

Jumbo loans are loans that are above the limit established by Fannie Mae and Freddie Mac.  Jumbo loans are usually priced a little bit higher than Conforming loans.  Guidelines may also vary to some degree than on conforming loans.  If you are looking for a Jumbo Loan, please call me at 818-920-1600 to discuss all of your options.


Balloon Loans

Balloon loans are  a 30 year amortized short term fixed rate loan.  These loans are usually fixed for 3, 5, or 7 years.  The balloon loans are different than the Adjustable loans that have a fixed rate period that is explained above.  At the end of the fixed rate period on balloon loans, the entire loan balance is due and payable.  These loans usually have lower interest rates than a regular 30 or 15 year fixed rate.

VA loans

If you are a veteran, you are entitled to receive a veteran loan. There are many benefits of a V.A. loan compared to a conventional loan. There are many benefits of a VA loan.  Here are a few of the benefits:

No down payment required.

Low 30 or 15 year fixed rate

Mortgage insurance financed in loan

Higher debt ratios allowed

To read more about VA loans, please click here.


Negative Amortized Adjustable Rate Loans also known as Pay Option Arms

Most of the adjustable rate loans that borrowers have received in the past few years were the Pay Option Arms.  These adjustable rate loans have the possibility of negative amortization.  Negative amortization happens when you make the minimum monthly payment and not the actual note rate (index + margin, in most cases) on your loan. The note rate is usually much higher than your minimum payment. The difference between the note rate and your minimum payment gets added to your mortgage balance each month.  For further detail on these loans please click here

Things to Ask

Here is a list of things to ask when you are looking for a loan.

1.  Is there a pre-payment penalty on the loan?

A prepayment penalty is a penalty that is paid to the lender if you pay off the loan within a certain period of the initial loan date.  The calculation for most California pre-payment penalty is as follows:

80% of the balance of the loan times 6 months of interest.

2.  Is this a fully amortized loan or is it interest only?

A fully amortized loan will pay off by the end of the loan period.  An interest only loan will only pay the interest on the loan and the principle balance will not go down unless additional principle payments are made.

3.  What are the points on this loan?

Points paid determine the interest rate received by the borrower. One point equals 1% of the loan amount. The higher the points paid, the lower the interest rate that is received by the borrower.

4.  Are there any upfront costs on this loan? 

Some companies charge an upfront non refundable fee to process your loan application. We do not charge such a fee.  The only other upfront fee that may be charged is the appraisal fee.  This is quite normal.  The appraisal fee is used to pay the independent appraiser that was used to appraise the property.

5.  Are the taxes and insurance included in my payment?

Depending on your loan-to-value, you may have the option to have your taxes and insurance impounded.  On most loans that are over 90% LTV, you must have them impounded.  Below 90%, you should have a choice of whether you want impounds or not.  If you do not want impounds, most lenders have a .25 point that is added to the closing costs.  If you have an impound account, then you will pay your taxes and insurance with your monthly mortgage payment.  The lender will then pay the taxes and insurance when they are due.  The positives to having an impound account are that you will not have to come up with a lump sum when the taxes and insurance are due each year and you will not have to pay the extra .25 in points on your closing costs.  The negative is that you will have to pay a few months (between 3 - 10) of taxes upfront to put in the impound account.  This amount will depend on taxes will be coming due.  The closer the date that they are due, the more months required at closing. 


FHA   Refinancing   FHA Streamline Refinance  First Time Home Buyer   Credit Problem   Interest Only Loans  VA Loans

Cashout Refinances   Prequal vs. Pre-Approval   The Loan Process  Closing Costs   Fico Scoring   Loan Types Described


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