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Loan Types

 

  • Conventional with down payment   These are the traditional mortgage loans everyone is familiar with.  The most popular is the 30 year fixed rate loan.  Borrowers generally think this is the loan they want.  It's also the most expensive loan available.  If you plan to stay in your property for at least 7 years, it's the way to go.  If not, there are better options.

  • Conventional with Zero Down   Zero Down loans are attractive for a variety of reasons.  The most obvious is that if you do not have the money for a down payment.  However, there are many investment strategies that make keeping your money a good alternative.  Need your money for another investment?  Want to keep your money in reserve?  Is there no enough saving in putting a down payment?  (Unless you have 20% down, you might as well go zero down.  The rates aren't that much better.)  Some categories of Zero Down loans are

  • Prime Loans, One Bank   Many banks offer Zero Down financing.  The rates are 

  • Subprime Loans, One Bank   Subprime is an industry term, not an indictment of who you are.  This means you are a borrower with a score less than a certain lenders cutoff for their best rate programs.  The cutoff varies according to who you talk to; anywhere from less than 700 to 580 on your credit midscore.  Many banks will still lend 100% to a subprime borrower.

  • Subprime Loans, Two Banks  Sometimes a borrower will 80%, and leave the borrower to find a second mortgage from another lender.  This can be a way to get better rates and a lower payment.

  • Seller Carrybacks   These loans are generally reserved for the borrowers with the roughest credit.  These are loans where you get a certain percentage from a bank, and the rest is a loan from the sellers equity.  The transaction requires a real estate agent knowledgeable in both how to find the properties that will go for this sort of deal, and how to do the paperwork.  Our team does about 1/3 of its business in seller carrybacks.  Most mortgage brokers and real estate agents have no experience in this type of transaction.  Beware of handing the biggest investment of your life to someone who doesn't know what they are doing but hopes to learn at your expense. 

Amortization Types   There are two types of loans; interest only and fully amortized.  Interest only loans are calculated on an annual basis.  Amortized loans are figured based on not only paying the agreed upon interest rate, but also the principal of the loan over the life of the loan.  What's the difference?  The average borrower will pay several hundred dollars more on an amortized loan each year.  If you are going to sell or refinance in 2 to 5 years, as most people do, you've wasted thousands of dollars with an amortized loan.  Most people, including mortgage brokers, don't understand this concept.  You can still make principal payments on an interest only loan.  Why lock into a high rate, amortized loan when you can save hundreds each month with a 5 year interest only loan, for example.  A little known fact is that with a 30 year amortized loan, it's in year 22 that you make equal payments of principal and interest.  For the first few years, it's almost all interest.  Compare an interest only loan with an amortized loan.  You can have the same interest rate and same loan amount.  The interest only loan will be hundreds less per month for the average borrower.  Confused?  Call me and I'll explain.  425 269-5823.  

 

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