Conventional or Conforming Loan First Mortgage

A conventional loan is a loan with a principle amount set by Fannie Mae or Freddie Mac, typically adjusted yearly. Currently, the maximum amount of a conventional loan is $417,000.

FHA

FHA loans are insured by the Federal Housing Authority, and require full income and asset documentation. As part of your loan payment you will pay mortgage insurance. The maximum loan to value allowed by FHA is 97%, so if you are refinancing an 80/20 into an FHA, you will need to have had the value of your house go up, or bring 3% to the table.

No Cost Loan

Under this type of loan, the lender pays for all your closing costs. These costs includes title work, escrow fees, points, origination fees, etc. The lenders ability to do a no cost loan is subject to the loan amount being over $250,000 and generally results in a borrower paying a slightly higher interest rate on their loan. This is a good alternative if you wish to minimize your up front out of pocket costs.

Non-Conventional or Jumbo Loan First Mortgage

A non-conventional or jumbo loan in a loan with a principle amount over $417,000. Typically, lenders have higher rates and costs for jumbo loans over $650,000 and $1,000,000.

Interest Only (I/O) First Mortgage

With an interest only loan you are paying just the interest, therefore at the end of the year your principle balance has remained the same. Typically I/O loans have a period at the beginning of the loan that allow for an interest only payment, then switch to a fully amortizing payment. In the case of intermediate adjustable rate loans like a 3/1, 5/1 or 7/1, the interest only period ends when the loan begins adjusting. In the case of a 30 year fixed rate with an I/O option, the I/O period is 10 years. At the end of the I/O period the lender begins fully amortizing the payment over the balance of the term.

Adjustable Rate Mortgage (ARM)

An ARM is a mortgage where you rate adjusts based on it's Margin plus it's Index. The Margin is fixed for the life of the loan and the index adjusts monthly, bi-annually or annually, depending on the loan.

Intermediate Adjustable Rate Mortgage

An Intermediate ARM has a fixed period at the beginning of the loan and then adjust annually or bi-annually after that. Examples of Intermediate ARMs are 3/1, 5/1, 7/1, or 10/1. The first number tells you how many years your loan is fixed for, the second number tells you how often it will adjust. A 1 means it will adjust annually, a 6 means it will adjust every 6 months. There are also caps associated with Intermediate ARMS. An example would be 5/2/5, the first number shows the maximum the rate can adjust on it's first adjustment, the second number shows how much it can adjust each time after that, and the third number indicates the maximum the loan can adjust.

Option ARM

An Option ARM is a loan that gives the borrower a choice of a very low minimum payment (typically based on 1%), an Interest Only (I/O) payment or a fully amortizing payment every month. If you make the I/O payment your principle balance stays the same, if you send in the minimum payment, which is less than the I/O payment the difference is added on to your loan amount. If you send in a fully amortizing payment, which is higher then the I/O option, the difference is subtracted from your loan amount.

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