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Mortgage Loan Programs Overview

About Mortgage Home Loan Programs and Which Program is Right for You

The number of mortgage loan payments that are available to potential homeowners these days are practically infinite. As a borrower, it's important that you choose the right type of mortgage loan before you commit.

If It Sounds Too Good To Be True... It probably is. You may have heard about home loan programs that will allow just about anyone to qualify for a mortgage. If you've heard about 1% start rate loans (also known as "pick a payment" or "neg-ams" loans), forget everything you've heard. They're not good deals. In fact, they could almost be termed scams. The same goes for home loan programs that stretch out over 40 or even 50 years. Consider them the "payday loans" of the mortgage industry, and run, don't walk, away from them.

Educate Yourself

If you know what's out there that's actually reasonable and workable, you'll be able to get a good deal on home loan programs, and you'll lower your risk of defaulting. Let's talk about some of the different types of mortgage loans that are available to home buyers.

Conforming and Non-Conforming Loans

If your mortgage loan meets Freddie Mac and Fannie Mae requirements, it's considered to be a conforming loan. If it doesn't, it's non-conforming. So what separates a loan that is conforming from one that is non-conforming?

Usually, a mortgage below $417,000 is "conforming." One over that amount is a "jumbo loan." The exception is Hawaii and Alaska, where the limit is $625,000. Note that this amount can change from year to year. With a jumbo loan, you might meet all of the Freddie Mac and Fannie Mae underwriting guidelines, but it will still be deemed non-conforming, and the mortgage rate will be higher than with a conforming loan.

If you're close to the limit, consider dropping the amount of the loan a bit. Your rate will drop correspondingly.

Conventional and Government Loans

Mortgages are also classified as conventional or government loans. A conventional loan can be either conforming or jumbo. Either way, they're not guaranteed or insured by the government.

When you think of government loans, you typically think FHA. This is a type of mortgage loan that's guaranteed by the Federal Housing Administration. USDA and VA loans are other types of government loans, and the maximum amount will vary by county.

Another common government loan is the VA loan, backed by the Department of Veteran Affairs. The max loan amount for these types of mortgage loans varies by county.

Mortgage Loan Programs

Now that you know about different types of mortgage loans, let's consider home loan programs. The most common is the 30-year fixed-rate mortgage. It's exactly what it sounds like - a mortgage that you take out over 30 years, and the rate doesn't change. You'll pay the same amount each and every month for as long as you have the mortgage. The advantage to the 30-year fixed-rate mortgage is that the payments are low, and you know there won't be any surprises.

Less common type of mortgage loan is the 15-year fixed-rate mortgage. It works the same way the 30-year fixed-rate mortgage does, except that you're paying over half the time. Obviously, this means that your payments will be considerably higher, so this type of mortgage loan is best suited to people who have a high income. If you can swing a 15-year mortgage, you'll end up paying a lot less in interest over the term of the loan.

Choosing a Loan Program

It's up to you to decide which home loan program is right for you. What can you handle? A monthly payment on a 15-year loan is going to be considerably higher than on a 30-year loan, but if you're confident that your financial situation isn't likely to change, it's definitely the way to go.

Your best course of action is to choose between a 30-year and a 15-year mortgage. Stay away from longer terms, and don't be fooled by unscrupulous lenders who promise you interest rates that aren't realistic.