Types of residential loans
A residential loan is a loan that finances one to four unit properties. It can be owner occupied or non-owner occupied. The types of mortgages below are all types of residential loans.
Fixed Rate Mortgages
Adjustable Rate Mortgages
FHA Mortgages
VA Mortgages
Reverse Mortgages
Fixed rate mortgages have been very popular the last few years as interest rates have stayed historically low. A true fixed rate mortgage is one which keeps the same interest rate throughout its entire amortization period. The 30 year fixed rate mortgage is the most prevalent program, but other popular terms are the 15 year and 20 year fixed rate mortgages.
We are now able to offer any term that a client wants and qualifies for. Let's say that you have only 23 years left on your current mortgage and you do not want to start over. You can refinance to a new 23 year term fixed rate mortgage.
Adjustable Rate Mortgages (ARMs) adjust over time. There is a start rate that is fixed for a set period of time. After that period of time, the adjustment is based upon three factors: the index, the margin, and the adjustment cap. The interest rates always aims to go to index + margin. However, the movement of the rate is limited by the caps: a cap upon the initial adjustment, and then a cap upon every subsequent adjustment.
For example, a popular ARM is a 5/1 ARM. The interest rate is fixed for the first five years and a typical first adjustment can be + or - 5% over the start rate. This loan will subsequently adjust annually, and the rate will go + or - 2% from the preceding rate. A typical index is the 12 Month Libor. If interested, the current index value can be found here.
FHA loans are insured by the Federal Housing Administration. The advantage of an FHA loan is that it can be easier to qualify for then a conventional loan. The minimum down payment on a standard FHA loan is only 3.5% Credit restrictions are a bit looser than on conventioanl loans. The interest rate is usually a little better than a conventional loan too. Debt-to-income ratios can be higher too. However, the big disadvantage is that the FHA loan requires Mortgage Insurance (MI) both up-front and monthly.
VA loans are guaranteed by the Veteran's Administartion. To qualify one must be serving or have served in the U.S. Armed Services. Interest rates are as good as an FHA loan, but there is no MI. The VA loan has an upfront Funding Fee, which can be waived for a Vet with a least 10% disability, and there is no monthly MI at all.
VA purchase loans require zero down payment, and the VA allows the Seller to pay all of the buyer's closing costs. We call this scenario a VA NO NO, meaning no down payment and no closing costs.
A Reverse Mortgage is also called a Home Equity Conversion Mortgage (HECM). This loan is administered by the FHA and it was designed for home owners aged 62 and older who either own their hoime free and clear or have a significant amount of equity on their home.
The loan is called a Reverse Mortgage because the homeowner has no mortgage payments and the balance on the loan increases every month. This loan can be a very good loan for a home owner who is house rich but cash poor every month.
Our company is based in San Diego and serves both Northern and Southern California. Our leading mortgage specialist has over 30 years of experience helping clients finance their dream homes, leading to many referrals and returning clients. At Pacific Sky Mortgage, we aim to help each client meet his or her home needs.