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Zhi Finance » The Basics of Mortgage Lending

The Basics of Mortgage Lending

Let’s face it, not everyone has enough money in their bank account to buy a house. If you’re an average American, chances are you’ll need a mortgage.

There are many types of mortgages, which can be divided into two categories. These two categories are conventional loans and government loans. These two types of mortgages can be further divided into fixed rate loans, adjustable rate loans, and different hybrids or combinations of these mortgages.

Mortgages provided by the U.S. government can be found from three government departments. These three departments are the U.S. Department of Veterans Affairs (VA), the U.S. Department of Housing and Urban Development (HUD), and the Rural Housing Service (RHS) of the U.S. Department of Agriculture. In addition to these, there are other mortgage programs for low-cost to moderate-level housing programs in various cities, states and counties. Most of them offer fixed rate mortgages and low interest rates.

The mortgage programs that are not included in these programs are under conventional mortgages. There are 2 types of mortgages under this category. These are conforming mortgages and non-conforming mortgages. Conforming mortgages follow the guidelines and conditions set by the two shareholder-owned companies. Fannie Mae (Fannie Mae) and Freddie Mac (Freddie Mac). These two companies purchase mortgages from lending institutions and package these loans into securities that are then sold to investors.

These two organizations set guidelines for mortgage down payments, suitable properties, loan amounts, borrower credit and income requirements. Also, loan limits for those applying for first-time mortgages are published annually. To view a table of their loan limits, interest rates and other information, visit the Fannie Mae ( and Freddie Mac ( websites.

Other mortgages are also available in the marketplace. These non-conforming loans include. Jumbo Loans and B/C Loans. Jumbo mortgages are those loans that exceed the maximum loan amount set by Freddie Mac and Fannie Mae. This is a mortgage that has a higher interest rate than conforming loans because the loan is acquired and purchased to a lesser degree.

On the other hand, a B/C mortgage is a program offered to people who have borrowed a mortgage earlier but have filed for foreclosure and bankruptcy. This is also for those borrowers who have a history of late payments.

As mentioned earlier, conventional and government mortgages can be divided into fixed rate mortgages and adjustable rate mortgages. From the term “fixed rate”, a fixed rate mortgage is one where the monthly payments remain fixed for the life of the loan. There are so many different kinds, ranging from 10-30 years, but the more popular mortgage terms are 15 and 30 years. You should note that a shorter mortgage term will ensure that you pay less interest.

If you want to take advantage of a mortgage where the monthly payments can change regularly, then you can choose a plan with an adjustable rate mortgage. The change in interest rate for this type of mortgage depends on the type of index on the interest rate. Some of these indices include the Constant Maturity Treasury (CMT), Prime Rate, Certificate of Deposit Index (CODI), 12-month Treasury Average (MTA), Cost of Savings Index (COSI), Certificate of Deposit (CD) Index, Treasury Bill (T-Bill), Region 11 Cost of Funds Index (COFI), London Interbank Offered Rate (LIBOR), and Fannie Mae Required Net Yield (RNY).

The Internet is a rich source of mortgage information, so many companies offer online resources and services for those who want to take advantage of these loans. However, before choosing the right type of mortgage, you must consider a number of factors so that your mortgage plan can be aligned with your financial goals. These factors include

-The amount you can pay each month on your mortgage

-How much of a down payment you can make

-How long you plan to stay in the house

-Considering whether you plan to make additional principal payments

-Because mortgages take a long time to pay, it’s also important that you consider the stability of your income.