Fixed rate mortgage are 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 your monthly principal and interest payments will be very stable.

Fixed-rate mortgages are available for 30 years, 20 years, 15 years and even 10 years.
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.

These loans generally begin with an interest rate that is 2-3 percent below a comparable fixed rate mortgage, and could allow you to buy 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 seven to ten years, for example, then adjusting to market conditions. Ask your mortgage professional about these and other special kinds of mortgages that fit your specific financial situation

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 1 month 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 indices, or, indexes are the 1-Year Treasury Security, LIBOR (London Interbank Offered Rate), Prime, 6-Month Certificate of Deposit (CD) and the 11th District Cost of Funds (COFI). Each of these indices move up or down based on conditions of the financial markets.

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 5.50% and your loan has a margin of 2.5%, your fully indexed rate is 8.00%. Margins on loans range from 1.75% to 3.5% 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.

Lifetime Caps - Almost all ARMs have a maximum interest rate or lifetime interest rate cap. The lifetime cap varies from company to company and loan to loan. 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.

The Department of Housing and Development (HUD), is the federal department responsible for the major housing programs in the United States. One of these programs is the FHA (Federal Housing Administration) loan. The government does not loan the homebuyer the money, they insure the loan, making it less risky for the lender to make this loan. The borrower pays both the FHA Monthly Mortgage Insurance and the financed Mortgage Insurance Premium (MIP).

FHA Loan Highlights
An FHA loan is a mortgage insured by the Federal Housing Administration.  Contrary to popular belief FHA loans are not just for first time home buyers.

• Low down payments. FHA loans usually require just a 3.5 percent down payment. Down payments can also be gifted to the borrower from family members.
• Easy credit qualifying. Those with less-than-perfect credit are more easily approved for a loan through FHA programs because the federal government insures them therefore allowing the banks to lend more freely.
• Low closing costs. FHA currently restricts the amount of origination fees to be a maximum of one percentage point. This usually means lower closing costs than a conventional mortgage. 
• Sellers may pay up to 6% toward actual closing costs
• An FHA loan can have a much better interest rate, which cuts down on the overall cost of the loan.
• No pricing adjustments on interest rates for lower credit scores or declining markets based on property values
•  FHA will allow non-occupying co-borrowers, providing buyers another way to buy even if they don’t qualify on their own
• Do not need to be a 1st time Home Buyer
• No Income Limits
• Loan limits are based on County the property is located in
• Financed Mortgage Insurance with monthly mortgage insurance payment
•  No reserves required on 1- and 2-units; 3 month reserves required on 3- and 4-units

Click here for more information about FHA loans.

The FHA 203(k) program provides a single-close loan that enables a qualified borrower to purchase a home that may need repairs or to refinance an existing home for the purpose of remodeling.

The Streamlined FHA 203(k) program allows the borrower to finance a maximum of $35,000 to make improvements that are not structural in nature. Under the streamlined process up to 50% of the contractor’s invoices can be paid up front for materials.

Both programs generate the necessary funds for renovation by financing the as-completed value of the home, rather than the present value. With FHA 203(k) rehabilitation lending, borrowers have a convenient alternative to a closed-end second mortgage or HELOC for repairs, renovations and improvements.

The 203(k) loan includes the following steps:

• A potential homebuyer locates a fixer-upper and executes a sales contract after doing a feasibility analysis of the property with their real estate professional. The contract should state that the buyer is seeking a 203(k) loan and that the contract is contingent on loan approval based on additional required repairs by the FHA or the lender.
• The homebuyer then selects an FHA-approved 203(k) lender and arranges for a detailed proposal showing the scope of work to be done, including a detailed cost estimate on each repair or improvement of the project.
• The appraisal is performed to determine the value of the property after renovation.
•  If the borrower passes the lender’s credit-worthiness test, the loan closes for an amount that will cover the purchase or refinance cost of the property, the remodeling costs and the allowable closing costs. The amount of the loan will also include a contingency reserve of 10% to 20% of the total remodeling costs and is used to cover any extra work not included in the original proposal.
• At closing, the seller of the property is paid off and the remaining funds are put in an escrow account to pay for the repairs and improvements during the rehabilitation period.
• The mortgage payments and remodeling begin after the loan closes. The borrower can decide to have up to six mortgage payments (PITI) put into the cost of rehabilitation if the property is not going to be occupied during construction, but it cannot exceed the length of time it is estimated to complete the rehab.
• Escrowed funds are released to the contractor during construction through a series of draw requests for completed work. To ensure completion of the job, 10% of each draw is held back; this money is paid after the lender determines there will be no liens on the property.

The USDA Rural Development is a federally insured loan program that provides very affordable lending terms for borrowers.  Contrary to popular belief Rural Housing loans are not just for first time home buyers.

Rural Housing Loan Highlights

• 102% financing - no down payment is required
• Do not need to be 1st time home buyer
• Income Limits based on Town the property is located in.  A few towns are not eligible for Rural Housing financing (see link below)
• No maximum purchase price limit
• Easy credit qualifying. Those with less-than-perfect credit are more easily approved for a loan through Rural Housing programs because the federal government insures them therefore allowing the banks to lend more freely.
• Seller Contributions – up to 100% of total closing costs
• No reserves required
• 100% Gift Allowed
• Cash to Close can be ZERO
• No reserves required
• No pricing adjustments on interest rates for lower credit scores or declining markets based on property values
• No PMI - Financed Mortgage Insurance with no monthly mortgage insurance payment

Click here for more information about Rural Housing loans.

A Veterans Administration (VA) loan can be used to help American servicemen or women and/or their spouses secure financing for a mortgage purchase. You can check with the Veterans Administration (through its website or through other information exchanges) to find out whether you are eligible given your service history.  Only service members who have received honorable discharges and who have served 90 days or more may qualify for VA loans. Bear in mind that the Veterans Administration is not funding the loan but rather insuring the loan on behalf of the lender in the event of payment default on your mortgage obligation.
Advantages of a VA Loan include:

• Loans up to $417,000
• 30 and 15 Year Fixed Loans
• Do not need to be a 1st time Home Buyer
• No Down Payment requirements
• No Income Limits
• Financed Mortgage Insurance (also known as the VA Funding Fee) with no monthly mortgage insurance payments
• Veterans receiving disability benefits do not pay a Funding Fee
• Reduced interest rates - No Pricing Adjustments for Credit Score or Declining Market for property values
• Seller Contributions allowed up to 4% of actual closing costs
• Limited closing costs
• Cash to Close can be ZERO
• No pre-payment penalty
• Maximum debt to income 45-50% - also will consider Residual Income based on family size

Click here for information about VA loans.

This Single Family Mortgage Program is designed primarily for first time home buyers and provides 30 Year Fixed Rate Mortgages with:

• below market interest rates
• options with points or with no points
• low down payment requirements
• cash assistance option
• and other flexible underwriting criteria

To qualify for the program, borrowers must meet certain income limits and purchase price limits.  In most areas of the state, participants must also be first-time home buyers. However, persons buying homes in “target areas” may have already owned a home.  Go to the New Hampshire Housing Finance Authority Website to view income and purchase price limits and the list of targeted towns.

Cash Assistance
This easy option to the NH Housing Single Family Mortgage Program provides a cash assistance grant equal to a maximum of 2% of the loan amount to help borrowers defray the cost of down payment, closing costs, and prepaid escrow expenses associated with purchasing a home.  Borrowers must contribute a minimum of 1% (based on purchase price) using their own funds (excluding gifts).  No cash back is allowed at closing.  Income, purchase price and all other guidelines follow the Single Family Mortgage Program.  There is no monthly payment on the cash assistance grant portion.  The full amount of the grant is due upon sale of the property, refinance of the mortgage or non-owner occupancy of the property.

Purchase/Rehab Loan Program
The Authority also offers a Purchase/Rehab Program that helps new home buyers purchase a home in need of repairs. This program can provide up to $40,000 to make improvements to enhance the livability of the buyer’s new home. Purchase/Rehab may only be used in conjunction with a mortgage loan from New Hampshire Housing’s Single Family Mortgage Program.

American Dream Program
The American Dream Program is a collaboration between New Hampshire Housing and the U. S. Department of Housing and Urban Development to provide up to 6% of a home’s sales price or $10,000 (whichever is higher) in financial assistance for down payment and closing costs to low income first-time home buyers.

Home Access Program
The HomeAccess Program helps low and moderate-income borrowers to acquire a home and/or make it accessible for a permanently disabled household member. At least one full time resident of the household must be permanently disabled to qualify for the program.

A construction loan is a loan that finances the building of a new home. To find out how much you can afford to borrow, you must figure out first what it will cost to build as well as the cost of the land.  Once you have determined the total costs then you can decide on what type of construction loan meets your needs.

Construction loans also don't pay out all at once. Funds are disbursed in phases as the work is completed.   An example of the phases of construction would be:

• Pouring the foundation
• Framing
• Installing heating and cooling systems, wiring, and plumbing systems
• Installing cabinets, flooring and fixtures
• Finishing work (painting, carpeting, etc.)

Construction-Only
Construction loans are usually short-term and are replaced by a standard mortgage once construction is finished. Some people get a "construction-only" loan in which only the construction of the home is financed. They then have the choice to shop around for another lender and/or a lower rate once the home is 100% complete.

Construction-to-Permanent
Others prefer to simply get a "construction-to-permanent" loan in which their construction loan is converted into a standard loan by the same lender, once the property is 100% complete and has a certificate of occupancy. This saves time and money since the borrower only has to fill out one mortgage application and have one closing. The type of end loan the construction loan is converted to is usually decided when the borrowers makes initial application with the lender prior to the closing of the loan.

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 6.0% at a cost of 0 points, the 2-1 buydown gives the borrower a first year rate of 4.0%, a second year rate of 5.0% and a third through 30th year rate of 6.0% and the cost would be 3.0 points.  Buydowns may be paid for by the seller of the property or perhaps by a transferring company on behalf of the employee relocating to a new area.

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.

When you are ready to make a purchase, you are going to be faced with unique terms such as conforming and jumbo loans. So, what is a jumbo loan?

Home loans are classified in a wide variety of ways. They can be classified by the amount loaned, whether the interest rate can be adjusted or not, the length of the payback period and so on. A fairly common and simple term to understand is the jumbo loan.

A jumbo loan is simply a mortgage in excess of the amounts set by government backed agencies that buy or guarantee loans. Companies such as Freddie Mac, Fannie Mae, HUD and what have you will guarantee the purchase of a loan from a lender if certain conditions are met. A discussion of those conditions is beyond this article, but one of them is the amount being borrowed. Depending on the agency in question, the limit is roughly in the $417,000.00 area. If the amount you are borrowing is less than this amount, then it is known as a conforming loan. If you need to borrow more, the loan is known as a non-conforming loan or “jumbo” loan.

Jumbo loans are different from conforming loans in a number of ways. Since no government agency is guaranteeing them, they are considered riskier. If you fail to pay, the lender is stuck with the home instead of simply getting paid by Fannie Mae or some such group. The situation is also considered to have more risk because higher priced homes are generally harder to sell quickly. While this wasn’t necessarily true in the recent hot real estate market, it is when things return to normal as they are now.

Given the higher risk from the perspective of the lender, you can expect to be treated a bit differently. In this case, lenders are going to charge higher interest rates than you would be able to get with a conforming loan. Before you panic, keep in mind we are talking about an 1/8 of 1 percent of a point in interest. For example, a conforming loan for $300,000 may have an interest rate of 6.125% percent whereas the same borrower will have to pay 6.25% percent if they borrow $800,000.

Whether or not refinancing your mortgage will benefit you is very specific to your overall financial profile. First it’s important for you to identify your financial goals. Perhaps you may want to reduce your payment to increase your monthly cash flow; or lower the term of the mortgage to reduce the total interest payments. Here are some things to consider . . .

Reasons to Refinance Your Current Mortgage:

• Reduce your current interest rate which will lower your monthly payment and save overall interest costs
• Reduce the current term of the loan and save thousands of dollars of interest payments
• Convert your adjustable rate to a fixed to protect yourself against fluctuating interest rates
• Roll your equity line into your first mortgage. Although the rates on your equity line may be initially low, the interest rate on the line typically adjusts with the market which can be attractive when rates are low but can become costly when rates rise. Rolling your equity line into the first mortgage can give you the peace of mind of a stable fixed rate payment.
• Take cash out of the equity of your home to pay off other debts, make home improvements, fund college tuitions, purchase an asset such as a recreational vehicle, boat or whatever hobby you are interested in.
• Remove an ex-spouse on the mortgage as a result of divorce when the property was deeded to the other spouse
• If the equity in your home is at least 20% or greater than the mortgage amount, then remove current mortgage insurance costs included in your payment which will lower your monthly costs

You should compare the costs versus the benefits of the refinance to determine if it’s the right decision for you. It’s important to sit down with Licensed Mortgage Professional to help you review your options.