How To Choose A Loan Program

How Do You Chose A Loan Program?

Matching your financing needs to the hundreds of loan programs available to you may seem like an impossible task. Having so many loans to choose from is a double edged sword; yes you have plenty to choose from but making a choice among one of them may seem like picking a needle out of haystack. In this section we will try to help you find that needle and help you make a choice that you can live with for years to come.

Rate. This seems to be everyone's most determining factor in getting a new loan. No doubt, it is important, however, it should not be the ONLY factor in determining what type of loan you will get. In some cases, the most important factor is: will I qualify for a given loan. Yes, the rate might be good for a certain type of borrower but it may not be available to you because of your credit score or employment situation.

Fees. This is usually second on the list for most people. What to keep in mind is that most 3rd party fees (title, escrow, appraisal, etc.) are fixed and vary very little between lenders. Lenders usually only charge an origination fee (points) and a processing fee. This would be spelled out in your Loan Estimate.

Loan Underwriting. This actually is more important than the other two factors above. Since no two loan situations are alike, finding the right set of underwriting guidelines that suits the borrower can make or break a deal. All of our programs have differing underwriting guidelines. FHA, VA, Non-QM, Jumbo, all have differing guidelines about credit scores, down payments, etc. This is why you need to work closely with one of our loan counselors to come up with the right loan solution for you.

Big Money: Jumbo Loans

Jumbo loans are those that exceed the lending limit guidelines of both Fannie Mae and Freddie Mac. The guidelines of these loans can vary from institution to institution. The rates on these loans are also slightly higher than conventional loans.

Fixed Rate vs Adjustable Rate

The difference between these two types of loans is obvious: fixed rate loans are just that, the interest rate on the loan remains constant throughout the life of the loan. On the other hand, an adjustable rate loan will have periodic adjustments in the interest rate to adjust to market conditions. Fixed rate loans are great if you want to know what your payment is going to be six, ten and fifteen years from now. On the other hand, adjustables come with lower starting interest rates, which means you can qualify for more home.

Adjustables can take many different forms, however there are four different factors that determine what kind of adjustable it is:

Starting Rate - This is the initial rate that your loan will start at. This rate is usually the lowest that it will ever be for the life of the loan.

Index - This is the base rate that the lender uses to determine your rate. Some common indicies are the LIBOR and 11th district Cost of Funds. These rates change with market conditions.

Margin - This is the constant percentage above the margin that the lender sets to ultimately determine your rate.

Adjustment Period - This the amount of time between each rate adjustment, usually three to twelve months.

Balloon Payment and Quasi-Fixed Rate Loans

These loans are very similar in that they both offer lower rates than most conventional fixed rate loans. However, they differ in one very important aspect, one, the balloon payment loan, must be paid off within a specific period of time (five to seven years) that is shorter than the amortization period (usually 30 years). The Quasi-Fixed rate loan is fixed for a certain number of years (again, five to seven) and then adjusts to a new rate for the remaining life of the loan. These loans can be great for borrowers who are not planning on staying in a home for more than five to seven years.