Mortgage Options

Fixed-Rate
The most common type of mortgage, offer consistently stable monthly payments. Your property taxes and homeowner's insurance may increase, but your monthly payments typically won't fluctuate.

Adjustable-Rate
The interest rate on an adjustable-rate mortgage (ARM) is dictated by changing market rates. When interest rates rise, your monthly payments will go up, and when interest rates decrease, your monthly payments will go down accordingly.

Reverse Mortgage
A special type of loan made to senior homeowners that allows them to convert the equity in their homes to cash for living expenses, home improvements, in-home health care or other needs.

Balloon Mortgage
Balloon loan payments only cover part of what you've borrowed during the term of the loan. At the end of the term, you're required to pay off the loan's balance by refinancing or making a lump-sum payment.

Others
Buy-Down Mortgage, VA Loans, Energy Efficient Mortgage, Graduated Payment Mortgage, etc.

Points are a percentage of the loan amount paid to the lender when negotiating a loan. 

Conventional Loans: Conforming and Non-Conforming

Conventional loans are any loans made by lenders without any governmental guarantees.  The basic protection for a lender making conventional loans are the borrower’s equity in the property.  Conventional loans can be conforming or non-conforming.

Conforming loans have terms and conditions that follow the guidelines set forth by Fannie Mae and Freddie Mac.  These loans are called “prime loans” and have new loan limits every year.  Conventional lenders usually require private mortgage insurance (PMI) on small down payments for protection in the event that the homeowner fails to make his or her payments.  PMI protects the lender against financial loss if a homeowner stops making mortgage payments.

Non-conforming loans are loans made to borrower’s who do not meet conventional lending standards like creditworthiness or amount of the loan.  Subprime Loans are loans that do not meet the borrower credit requirements of Fannie Mae and Freddie Mac.  Subprime loans are offered to borrowers that may have recently filed for bankruptcy or foreclosure or have had late payments on their credit report.  Subprime loans were developed to help higher risk borrowers obtain a mortgage.
Jumbo loans are loans that exceed the maximum loan limit set by Fannie Mae and Freddie Mac.  They usually carry a higher interest rate and some additional underwriting requirements.

Government-Backed Loans

There are two federal agencies and one state agency that help make it possible for people to buy homes.  The two federal agencies that participate in real estate financing are that Federal Housing Administration (FHA) and the Veterans Administration (VA).  The California Farm and Home Purchase Program (CalVet), is a state program that helps eligible veterans.

The FHA was established to improve the construction and financing of housing.  The main purpose of the FHA program is to promote homeownership.  As a result it sets minimum property requirements and systemizes appraisals.  The FHA does not make loans, rather, insurers lenders against loss. The lender is protected in case of foreclosure by charging the borrower a fee for an insurance policy called Mutual Mortgage Insurance (MMI).  The insurance requirements is how the FA finances it’s program.  There are no alienation and prepayment penalty clauses allowed in FHA loans.

The Department of Veteran Affairs does not make loans.  It is similar to FHA loans, except only an eligible veteran may obtain an VA loan and the it does not require  a down payment up to certain loan amount, which means qualified veterans could get 100% financing.  A veteran must have a Certificate of Eligibility which shows the veteran's entitlement or right to obtain a loan.  They also require a Certificate of Reasonable Value (CRV) that determines the reasonable value of the property. 

The California Department of Veterans Affairs administers the CalVet loan program to assist California veterans in buying a home or farm.  Unlike other government financing, the CalVet program funds and services its own loans.  The CA VA sells bonds to purchase homes and then sells the home to qualified California veterans using a a land sale contract.  The department  holds legal title and the veteran holds equitable title until the loan is paid off.  The veteran has an obligation to apply for life insurance, with the Department of Veteran Affairs as beneficiary, to pay off the debt in case of the veteran’s death.