The Marino Lending Team
NMLS Lic #209516 and #244399 in Illinois First Centennial Mortgage/Naperville 651 N. Washington St Naperville, IL 60563 630-983-3604  |  Company: NMLS# 132763

Loan Programs

Types of Mortgages Available

The process of applying for a mortgage loan can be complicated, and one of the first steps for a homebuyer is to decide which type of loan will best serve his or her needs. Some mortgage applicants are first-time homebuyers, seeking to buy a home as a primary residence, while others are seasoned residential homebuyers, with experience purchasing homes primarily for investment purposes in the form of rent revenue and asset appreciation. No matter what type of borrower you are, you should be familiar with the different types of mortgages available today.

On this page, we’re going to compare different types of mortgage loans and the advantages and disadvantages of each.

Fixed Rate Loans vs. Adjustable Rate Loans

Fixed rate mortgage loans are exactly what they sound like: the interest rate is fixed for the entire life of the loan, locking a borrower into a set interest rate. The length of fixed rate loans can vary, but two of the most common timeframes are 15 and 30 years.

One advantage of this type of loan is that the monthly payment is fixed for the entire term, which can make budgeting predictable and therefore easier. However, one downside is that if you take out a loan when interest rates are high, you’re locked into that higher rate for the entire term of the loan. If you have high fixed rate loans in a low interest rate environment, you may be able to refinance your loans after once interest rates drop. Of course, there is no guarantee you will be able to refinance in the future.

Adjustable rate mortgage (ARM) loans have an interest rate that changes throughout the life of the loan as interest rates fluctuate. ARMs generally have an initial fixed-rate period of between 5 and 10 years, in which the interest rate is fixed. After the fixed-rate period, the rate switches to variable. The variable rate is typically set based on a benchmark index rate that varies based on market conditions. During the fixed-rate period, the interest rate is usually lower than the interest rate on a traditional fixed-rate loan.

Conventional Loans vs. Government Insured Loans

A Conventional loan is a mortgage loan originated by a bank or private lender, and is not backed or insured by the government. Banks typically look at credit scores and debt-to-income ratio in evaluating conventional loan applications. Down payments (up-front cash) are usually required when taking out a conventional mortgage. Minimum down payments are typically 3 to 5%, but many borrowers choose to pay more in cash up-front in order to decrease the size of the remaining mortgage. Private mortgage insurance (PMI) is generally required when the down payment is less than 20%. The PMI is cancelable once you achieve 20% equity in your home without having to refinance your existing mortgage loan.

HomeReady loans are a conventional loan that addresses common financial challenges and offers expanded eligibility guidelines for low to moderate income borrowers, such as 1) Offering a 3% down payment optionFirst-time and repeat homebuyers can purchase a home with a down payment as low as 3% of the purchase price. 2) Allowing co-borrower flexibility. All borrowers do not have to reside in the property. For example, parents, who won’t be living in the home, can be co-borrowers on the loan to help their children qualify for a mortgage and purchase a home. Income limits may apply and 3) Accepting additional income sources. Rental payments may be considered as another allowable income source to help qualify a buyer (i.e., rental payments from a basement apartment).

Home Possible and Home Possible Advantage loans are two conventional loan programs created by Freddie Mac.  They are affordable given their smaller 3% to 5% down payment requirement. The one that's right for you will depend upon your income, the type of property you wish to finance, and property location. Home Possible mortgagees are designed for low to moderate-income homebuyers and are well suited for first time home buyers and younger borrowers.  These programs can help you go from renting to buying. You can finally paint the walls the color you want.!   

For home buyers looking for more flexible lending standards, government-backed loans such as Federal Housing Administration (FHA) loans and Department of Veterans Affairs (VA) loans for veterans can be appealing options.

FHA loans are not directly issued from the government; certain lenders can issue FHA loans on behalf of the government and the Federal Housing Administration insures the loans. With flexible lending standards, qualifying for an FHA loan is often less difficult than qualifying for a conventional mortgage. As such, FHA mortgages can be a great choice for borrowers with less than stellar credit score or a high debt-to-income ratio. However, homebuyers with an FHA loan typically are required to take out mortgage insurance, which can carry high premiums and cannot be cancelled when you achieve 20% equity in your home.

An FHA 203k loan is a loan backed by the federal government and given to buyers who want to buy a damaged or older home and do repairs on it. Here’s how it works: Let’s say you want to buy a home that needs a brand-new bathroom and kitchen. An FHA 203k lender would then give you the money to buy (or refinance) the house plus the money to do the necessary renovations to the kitchen and bathroom.

Often the loan will also include: 1) an up to 20 percent “contingency reserve” so that you will have the funds to complete the remodel in the event it ends up costing more than the estimates suggested and/or 2) a provision that gives you up to about six months of mortgage payments so you can live elsewhere while you’re remodeling, but still pay the mortgage payments on the new home.

VA mortgages are designed to help veterans purchase homes with no down payment. VA loans are provided by banks and private lenders. Similar to FHA loans, the government doesn’t directly issue these loans, instead they are processed by banks or private lenders and guaranteed by the VA. While VA loans are attractive because they typically require no down payment and no private mortgage insurance. They usually have lower limits on loan amounts. Veterans, active-duty service members, and surviving spouses are eligible for VA mortgage loans.

USDA/RHS Loans or the United States Department of Agriculture (USDA) offers a loan program for rural borrowers who meet certain income requirements. The program is managed by the Rural Housing Service (RHS), which is part of the Department of Agriculture. This type of mortgage loan is offered to "rural residents who have a steady, low or modest income, and yet are unable to obtain adequate housing through conventional financing." Income must be no higher than 115% of the adjusted area median income [AMI]. The AMI varies by county. USDA loans are attractive because they typically require no down payment and no private mortgage insurance.

Conforming Loans vs. Non-Conforming Jumbo Loans

A conforming loan meets certain guidelines established by the Federal Housing Finance Agency (Fannie Mae and Freddie Mac). The amount a buyer can borrow is limited, and that limit changes annually, based on federal guidelines. The conforming loan limit in 2018 is $453,100, but there are certain adjustments for those who live in high-cost real estate markets. Conforming loans offer better interest rates and lower fees than non-conforming loans.

There are several different types of non-conforming loans. The most common is a jumbo loan. A jumbo loan is a loan that exceeds the conforming loan limit. Due to the size of the loan, the requirements to qualify are more stringent. Interest rates can also be higher for jumbo loans because they are considered more risky to the lender. Other types of non-conforming loans exist for borrowers with poor credit, borrowers who have recently filed for bankruptcy or borrowers with a high debt-to-income ratio.

Each homebuyer is unique, so taking the time to fully understand the process of selecting the right mortgage is a critical first step. To learn more about how to select the right mortgage by contacting us to discuss which loan is best for you and your family.

Down Payment Assistance

If you chose a loan program that requires a down payment and you need some assistance assembling the funds, see if you qualify for IHDA (Illinois Housing Development Authority) 1) $7,500 forgivable grant for first time homebuyers or 2) $5,000 zero interest loan for non-first time homebuyers and first time homebuyers.  Go to our "Need Down Payment Assistance" tab to learn more or just call us.


Your Dedicated Loan Officer

The Marino Lending Team

NMLS Lic #209516 and #244399 in Illinois Tony: 630-806-2870, Tanya 815-757-6944 and Glen 630-983-3604 Company: NMLS# 132763

First Centennial Mortgage/Naperville
651 N. Washington St
Naperville, IL60563
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