Loan Programs

Fixed Rate Mortgages 

The most common type of mortgage program where your monthly payments for interest and principal never change. Property taxes and homeowners insurance may increase, but generally your monthly payments will be very stable. 

Fixed-rate mortgages are available for 30 years, 20 years, 15 years and even 10 years. Now there are even more exotic fixed rates mortgages available. There are also “bi-weekly” mortgages, which shorten the loan by calling for half the monthly payment every two weeks. (Since there are 52 weeks in a year, you make 26 payments, or 13 “months” worth, every year.) 

Fixed rate fully amortizing loans have two distinct features. First, the interest rate remains fixed for the life of the loan. Secondly, the payments remain level for the life of the loan and are structured to repay the loan at the end of the loan term. The most common fixed rate loans are 15 year and 30 year mortgages. 

During the early amortization period, a large percentage of the monthly payment is used for paying the interest . As the loan is paid down, more of the monthly payment is applied to principal . A typical 30 year fixed rate mortgage takes 22.5 years of level payments to pay half of the original loan amount. 

 

Adjustable Rate Mortgages 

These loans generally begin with an interest rate that is 1-3 percent below a comparable fixed rate mortgage, which could help a borrower to qualify for a more expensive home. 

However, the interest rate changes at specified intervals (for example, every year) depending on changing market conditions; if interest rates go up, your monthly mortgage payment will go up, too. However, if rates go down, your mortgage payment will drop also. 

There are also mortgages that combine aspects of fixed and adjustable rate mortgages – starting at a low fixed-rate for five, seven or ten years, for example, then adjusting to market conditions. Ask me about these and other special kinds of mortgages that fit your specific financial situation.

 

Standard ARM Programs 

A few options are available to fit your individual needs and your risk tolerance with the various market instruments.

Not too long ago there were many ARM product offerings that used a variety of indexes such as the Libor, Treasury, COFI and CD indexes. Most of those products have gone away and now have been replaced with a new index called (SOFR) Secured Overnight Financing Rate offered by the Federal Reserve Bank of New York.  The interest rate and monthly payment can change based on adjustments to the index rate. 

 

Introductory Rate ARMs and How They Work 

Most adjustable rate loans (ARMs) have a low introductory rate or start rate, some times as much as 5.0% below the current market rate of a fixed loan. This start rate is usually good from 5 years to as long as 10 years. As a rule the lower the start rate the shorter the time before the loan makes its first adjustment.

Index – The index of an ARM is the financial instrument that the loan is “tied” to, or adjusted to. The most common index is the SOFR (Secured Overnight Financing Rate).  Beginning with the first Change Date, your interest rate will be based on an Index plus a margin. The Index is the 30 day Average Secured Overnight Financing Rate (SOFR) offered by the Federal Reserve Bank of New York. The most recent Index figure available as of the date 45 days before each Change Date is called the Current Index. If the Index is no longer available the Lender will choose a new Index, which is based on comparable information. 

Margin – The margin is one of the most important aspects of ARMs because it is added to the index to determine the interest rate that you pay. The margin added to the index is known as the fully indexed rate. As an example if the current index value is 1.25% and your loan has a margin of 3.0%, your fully indexed rate is 4.25%. Margins on loans range from 1.75% to 4.5% depending on the index and the amount financed in relation to the property value. 

Interim Caps – All adjustable rate loans carry interim caps. Many ARMs have interest rate caps of six-months or a year. There are loans that have interest rate caps of three years. Interest rate caps are beneficial in rising interest rate markets, but can also keep your interest rate higher than the fully indexed rate if rates are falling rapidly. 

Payment Caps – Some loans have payment caps instead of interest rate caps. These loans reduce payment shock in a rising interest rate market, but can also lead to deferred interest or “negative amortization”. These loans generally cap your annual payment increases to 7.5% of the previous payment. These types of loans are offered under the Non-QM (Qualified Mortgage) type products. 

Lifetime Caps – Almost all ARMs have a maximum interest rate or lifetime interest rate cap. For example if it is 5%, then your interest rate cannot increase or decrease more than five percentage points (5.0%) over the life of the loan. At the first Change Date Loans with low lifetime caps usually have higher margins, and the reverse is also true. Those loans that carry low margins often have higher lifetime caps.  

Determining an Interest Rate on a 5/6 SOFR Arm with (2/1/5 Caps) –  In this example, the interest rate will be determined by adding the index to the margin and rounding the total to the nearest one-eighth of one percentage point (0.125%), unless your interest rate “caps” limit the amount of change in your interest rate. The date on which your interest rate can be adjusted is called the “Change Date”. The first Change Date will occur on the 60th payment due date (for 5/6 ARMs). Subsequent Change Dates will occur every 6 months thereafter. Your interest rate cannot increase or decrease more than two percentage points (2.0%) at the first Change Date, or more than one percentage point (1.0%) at any subsequent Change Date. Your interest rate cannot increase more than five percentage points (5.0%) over the life of your Loan, and cannot decrease below the margin. 

 

Buydown Options 

The most common buydown is the 2-1 buydown. In the past, for a buyer to secure a 2-1 buydown they would pay 3 points above current market points in order to pay a below market interest rate during the first two years of the loan. At the end of the two years they would then pay the old market rate for the remaining term. 

As an example, if the current market rate for a conforming fixed rate loan is 8.5% at a cost of 1.5 points, the buydown gives the borrower a first year rate of 6.50%, a second year rate of 7.50% and a third through 30th year rate of 8.50% and the cost would be 4.5 points. Buydown were usually paid for by a transferring company because of the high points associated with them.

In today’s market, mortgage companies have designed variations of the old buydowns rather than charge higher points to the buyer in the beginning they increase the note rate to cover their yields in the later years. 

As an example, if the current rate for a conforming fixed rate loan is 8.50% at a cost of 1.5 points, the buydown would give the buyer a first year rate of 7.25%, a second year rate of 8.25% and a third through 30th year rate of 9.25% , or a three-quarter point higher note rate than the current market and the cost would remain at 1.5 points. 

Another common buydown is the 3-2-1 buydown which works much in the same ways as the 2-1 buydown, with the exception of the starting interest rate being 3% below the note rate. Another variation is the flex-fixed buydown programs that increase at six month interval rather than annual intervals.

As an example, for a flex-fixed jumbo buydown at a cost of 1.5 points, the first six months rate would be 7.50%, the second six months the rate would be 8.00%, the next six months rate would be 8.50%, the next six months rate would be 9.00%, the next six months the rate would be 9.50% and at the 37th month the rate would reach the note rate of 9.875% and would remain there for the remainder of the term. A comparable jumbo 30 year fixed at 1.5 points would be 8.875%. 

In the past, these products were used to help a borrower to qualify for a larger loan amount. Today, underwriting will require to qualify at the maximum rate, so therefore this product is rarely used.   

 

80/10/10, 80/15/5, and Other Multiples 

These are combination loans where the buyer gets a first mortgage and a second mortgage at the same time. For example on an 80/10/10 program…. The eighty (80) represents the first lien mortgage loan amount of 80% of the sales price, the other ten (10) represents a second lien mortgage loan amount of 10% of the sales price, and the last ten (10) represents the buyer putting a down payment of 10% of the sales price. The buyer can then avoid paying private mortgage insurance (PMI). In most cases, the buyer may also avoid impounding escrows for taxes, insurance, etc. These types of loan usually have a hit to the fee on the first lien and the second lien rates are usually higher.

Investment Properties

These loans are for borrowers who will not be occupying the property. Typically these loans are for rental or business purposes. Single family homes, condominiums, Townhomes, and up to a four-plex are acceptable. The minimum down payment is 15% for SFD and with PMI. There are hits to the fee on these types of loans and the hits are lessoned when putting 25% or more down. 

 

Cashout Equity Loan 

Tap into the equity that you have built up in your home to make improvements, pay off higher interest rate credit cards, finance a car, or any other purpose. In Texas, you can borrow up to 80% of your home’s equity and the interest is typically tax deductible. These are very popular loans because they allow the borrower to refinance to get their rate down lower and at the same time allowing the borrower to pull some extra cash out of their home. 

 

Less Than Perfect Credit Loans (Non-QM loans) 

Also known as Non-Qualified Mortgage loans. Had credit problems? Been delinquent on a couple of mortgage payments or filed for bankruptcy, cannot show income the conventional way? Do not worry–I can help you find a product tailored to your specific situation.

Underserved Communities (HomeReady and HomePossible Programs)

Conventional loans that are ideal for first-time homebuyers who come under the median income that is established in the area they are looking to purchase, might not have stellar credit scores and only have limited savings for a down payment. Both programs allow for more favorable interest rates as well as Private Mortgage Insurance (PMI).

 

True Bi-Weekly Programs 

This program is designed to take years off the mortgage and lower the effective rates substantially. It initially does this by the client making two extra payments per year. The next and most important step is that the payment if withdrawn directly from the client’s checking account. This results in a vast amount of interest saved, because the lender does not have to wait on and process the payment. It takes an average seven years off a 30-year mortgage. It substantially lowers the effective rate on the loan. It can be done on a 30-year fixed rate or a 15-year fixed rate.

 

Construction to Permanent Loan 

This type of loan is designed for the person who needs construction financing and then permanent financing once the home is completed. There are one-time close programs and two-time close programs. Please call me for more details.

 

Rehab Loan

This type of loan is designed to be able to purchase or refinance a home at the same time as adding improvements or repairs to the home all in one loan. This is a great product for someone who would like to purchase a home that needs major repairs done first in order to obtain regular financing.  This product allows for the buyer to purchase and make those repairs all in one loan. With this product you can now compete with a cash buyer in a fix-up purchase.  This is a conforming loan product and will allow as low as 3% down.   

 

Doctor Loans 

Available in a 5/6, 7/6 ARM. Max LTV up to 95% , Loan amounts up to $850,000. Future employment contract eligibility. Eligible borrowers include medical residents, new, and established doctors 

 

VA Loan 

Loans for Veterans with as low as zero (0%) down. VA jumbo loans also available up to $2 million.

 

FHA (Government) Loans 

Accommodates low down payment of 3.5%, FHA MI, Short refi allowed, Non-traditional credit score eligibility and manual underwriting allowed, Max DTI: per findings. If over 55%, 2 months reserves required.

 

USDA- Guaranteed Rural Housing) Loan 

No down payment required, Property must be in an eligible Rural Area , Rural Housing guarantee