Conventional Mortgages

Guide to Conventional Mortgages

Fixed Rate Mortgages

30 year Fixed Rate Mortgages:

30 year mortgages were once the only type of mortgage possible. There are currently many different options but the 30-year fixed still remains the most popular. A 30-year mortgage is when the borrower has 30 years to pay back the mortgage at a fixed interest rate, which means the payments remain the same for the course of the mortgage. The initial rate and mortgage payments are higher in a 30 year fixed, in comparison to other mortgages, such as an adjustable rate mortgage, yet payments remain the same regardless of the changes in interest rates. The payments on fixed rate mortgages are calculated in order to have the mortgage paid in full by the end of the term, which in this case is 30 years. As the loan is paid down, monthly payments become more towards the principal and less towards the interest.

15 Year Fixed Rate Mortgages:

15 year fixed rate mortgages are popular with people who can afford to pay 10 to 15 percent higher in monthly payments than the traditional 30 year. The advantages to this loan is that it allows the homeowner to have their mortgage paid off before their children begin college or before retirement. Qualification for this type of loan is sometimes more difficult to meet than the traditional loan because the income requirements are higher.

Balloon Loans:

Unlike 15 and 30 year fixed rate loans, balloon loans do not pay off the entire balance by the end of the term. Balloon loans have a fixed rate and fixed monthly payments but at the end of the term there is a lump sum due. This allows lower monthly payments, yet requires a large amount due at the end of the term which can come from either a personal savings or a refinance.

Download our PDF guide, “One Thing You Must Know About Rates”

Adjustable Rate Mortgages (ARMS)

Adjustable Rate Mortgages (ARMs) are an alternative to a fixed rate mortgage and are popular with homebuyers who have expectations of rising income, high interest rates or short term ownership. ARM’s are only a good option for those who can keep up with the possible increasing rates and payment changes associated with  those increasing interest rates.

Each of these mortgages has four components as well as policies that can cap the interest rate and payment types in order to safeguard the mortgage. There are four main components to determing the rate of an ARM. The first is the Initial Interest Rate which is normally anywhere from one to three points lower than the rates of fixed rate mortgages. The second component is the Adjustment Interval which occurs at the time between changes of monthly payments or interest rates. The third component is the Index. There are a few major indexes that lenders use to measure the overall market and if rates are increasing or decreasing. Lastly the Margin is the additional amount which can be added to the index by the lender to create the adjustable interest rate, this margin can range from 1.5 to 2.5 percent.

The minimum credit scores for Adjustable Rate Mortgages varies per investor. The amount borrowers are allowed to finance varies from 65% to 90% of the property value depending on property type and whether it is a purchase or refinance.

Download our PDF Guide, “Are ARMs Alright?”

Fannie Mae Homepath Mortgage

The Fannie Mae HomePath Mortgage is a special program to provide financing to borrowers who are purchasing a Fannie Mae Real Estate Owned property. This is a result of a foreclosure or similar action on the home that Fannie Mae has then deemed eligible for HomePath Financing. This is a purchase only program. It is offered as a fixed rate program for a 30 year term or an adjustable rate mortgage as a 5/1 or 7/1 option (please see our adjustable rate mortgage page for more info).

This program allows borrowers to finance up to 95% of the property value which will vary depending on whether it is a  primary residence, second home, or investment property. Some great benefits to this program include no requirements for mortgage insurance or appraisal. The credit score requirements are fairly lenient with a minimum credit score of 660 for primary or second homes and a 700 for investment properties.

Download our guide to Homepath Mortgages

Fannie Mae MyCommunity Mortgage

My Community Mortgage (MCM) is a conventional community lending mortgage that offers underwrting flexibilities to qualfied borrowers who meet specific income criteria. In determining whether a mortgage is eligible under the borrower income limits, the income from all of the borrowers who will be listed on the mortgage note must count. Therefore, income is based on the borrower(s), not the total household income. the borrower’s income is limited to 100% of the area median income (AMI) in which the property is located, except non-metropolitan counties which has an income limit of 115% and some high cost areas where the income limit can range from 120% to 170% of the AMI.

This program offers a 30 year term for the purchase or refinance of a primary residence only. The MCM has a minimum credit score of 660 and borrowers are allowed to finance up to 95% of the property value. For borrowers with a credit score of 720 or higher, there is no minimum investment required from the borrower which means the down payment may be 100% gift. Another great benefit of this program is that it has low mortgage insurance coverage requirements.

Download our guide to My Community Mortgages

Freddie Mac 97% Possible

With Home Possible, you’ll capitalize on opportunities to meet the home financing needs of low- and moderate-income borrowers looking for low down payments and flexible sources of funds.

Download our guide to Freddie Mac 97% Possible Mortgage