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Type Of Loan and What Is My Monthly Payment?

Conventional Loan: This type of loan requires you to make a payment of the accrued principal and interest each month over the life of the loan (generally 30 years). Moreover, since you are reducing the principal balance each month, the loan will be completely paid off at the end of your loan term.

Interest Only Loans: With this type of loan, you only pay the accrued interest each month for a fix period. This fix period can be anywhere from six months to ten years. Once the initial fix period is over, your monthly payments reverts back to principal and interest payment that is amortized for the remaining term of the loan.

Negative Amortization Loans, also known as “Option ARM”: This type of allows you to choose your monthly payment each month. The payment options are the minimum payment, interest only payment and a full amortizing payment of principal and interest. This type of loans allows the borrower the least possible monthly payment, however, there is a possibility of what is known as “negative amortization”. Negative Amortization will increase your loan balance rather than reducing it which can lead into a balloon payment at the end of your loan term.

How Much Documents Must I Provide?

Full Documentation Loan: This is the most common loan in which the lender will require you to document your employment for the last 2 years and all of your assets. Generally, you will need to provide your current pay stub, W-2 for the last 2 years, 2 years tax returns for self employed individuals, 2 months asset statements and be able to document any other type of income.

 Stated Income Loan: With this type of loan will allow you to state your income without documenting it. The lender will rely on your statement other sources to verify that the income you state is reasonable for the profession. Although you don’t have to document your income sources, you will still need to document your assets. With stated income loans, you will generally pay a higher interest rate and there is a minimum credit score to qualify.

No Ratio Loan: With this type of loan, you will not have to state or document your income. However, you will still need to document your assets. With a no ratio loan, you will generally pay a higher interest rate and there is a minimum credit score to qualify.

No Doc Loan: With this type of loan, you will not have state or document your income and assets. Generally the only requirement for this loan is a minimum credit score. However, you will generally pay a higher interest rate on this type of loan

Other Terms

Loan To Value (LTV): This is the ratio between what your home is worth and the loan amount. For example, a property that is valued at $100.000.00 and has a loan amount of $80,000.00, the LTV would be 80%.

Combined Loan To Value (CLTV): This the ratio between what your home is worth and your first and second loan. For example, a property that is valued at $100,000.00 and has 1 st loan of $80,000.00 and 2 nd loan of $10,000.00, the CLTV would be 90%.

Debt to Income Ration (D/I): This is the ration between your monthly gross income in relation to your monthly debt obligation. For example, your monthly gross income is $1,000.00 and your monthly debt obligation is $300.00, your D/I would 30%. Your D/I should not be more than 45%.

Points: Points are loan fees that are charged to the borrower. For example, 1 point on a $100,000.00 loan equals to $1,000.00 loan fee.

Pre-payment Penalty: A penalty is charged to the borrower if they pay the loan off before the prepayment term is over. The term is generally 3 years and the penalty is generally 6 months of interest on the outstanding balance.

 Private Mortgage Insurance (PMI): The lender will generally require the borrower to get PMI if the LTV on the loan is greater than 80%.

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