Loans Defined

You don't have to have perfect credit to obtain a mortgage loan, but if you have a number of late payments you will need to provide a letter explaining why those payments were late. It is a good idea to check your credit score several months before you apply for your loan.

PITI stands for Principal, Interest, Taxes, and Insurance. It is the total amount you pay each month to your lender, including your principal and interest on the mortgage, real estate taxes, and homeowners insurance. If you are paying private mortgage insurance or condominium/co-op association fees, these monthly payments are included in the PITI amount.

Closing costs are all the charges associated with the transaction, including points, origination fee, appraisal fee, title search, title insurance, survey, taxes, deed recording fee, charges for credit reports, escrow fees, attorney?s fee, and documentary stamps on notes. Closing costs range from 2-6% of the loan amount.

If your down payment is less than 20%, most lenders require you to carry private mortgage insurance (PMI). Private mortgage insurance provides assurance that if you default on your payments, the lender will be able to recoup at least 80% of the money lent to the borrower. The buyer typically bears the cost of the PMI insurance for the lender.

Both Fannie Mae, or the Federal National Mortgage Association, and Freddie Mac, or the Federal Home Loan Mortgage Corporation, are private, shareholder-owned companies that offer financial products and services for low-, moderate-, and middle-income homeowners. They are NOT part of the government, but they do have federal charters, Congressional mandates, and regulatory structure. Competition between Freddie Mac and Fannie Mae ensures that the benefits of the secondary market are passed on to homebuyers and renters through lower housing costs.

Conventional Loans are divided between two types: Conforming and Non-Conforming. Conforming Loans are typically given to borrowers with higher credit scores than are Non-Conforming Loans. Conforming Loans also are generally "Fannie Mae" or "Freddie Mac" loans.

For many first time buyers, the Federal Housing Administration (FHA) is a program for people who have no credit history, or, if you do have a credit history, it does not need to be perfect. You can get an FHA loan with a 3% down payment, which can come from yourself, your immediate family, or even a special non-profit program that ?donates? your 3%. Also, the seller can contribute up to 6% of the sale of a home, which could mean buying a home with no money down. Ask about the OWN Program, one of the non-profit down-payment assistance programs 1st Choice Mortgage offers.

Veteran's Administration (VA) loans offer many advantages over other types of loans. Most importantly, no down payment is required in most cases. Also, there is no monthly mortgage insurance premium to pay. VA performs personal loan servicing and offers financial counseling to help veterans avoid losing their homes during temporary financial difficulties.

A Fixed Rate Mortgage requires a monthly payment amount that never changes over the life of the loan.

ARMs start out with smaller payments, good for people who anticipate moving fairly quickly, or who are starting their careers and believe they will be increasing their income shortly.

No Doc, or No Documentation Loans are beneficial for self-employed individuals, contractors, and wait service staff. No Doc Loans require that no employment, income, or assets be stated on an application. These loans are usually offered at higher rates than many other loan options.

NIV stands for No Income Verification. It can be a part of the No Doc Loan process, or it can be a part of a Stated Income Loan.