Mortgage Basics

What you need to know about mortgages.

In the old days, homebuyers more or less had only limited options when in need of mortgage loan. But with the real estate boom of the previous years mortgage brokers, banks, and mortgage wholesalers have created many new mortgage products to offer more choices and to allow more people to get a mortgage at all.

The real estate boom of the last 10 years has changed the mortgage industry significantly. People who would not qualify for traditional mortgages suddenly gained access to the housing market when more customized products were designed and made available to the public. Here’s a basic introduction.

1. Conforming Loans: These loans are designed to fully comply with program requirements established by Fannie Mae and Freddie Mac – the two government sponsored entities that buy and sell loans from independent mortgage lenders across the United States. These two entities have very strict caps defined on loans they will buy. Both entities are considered “secondary market mortgage companies”. Currently the upper cap for single-family homes is set at around $360,000 mortgage amount. Some real estate markets like Orange County (Los Angeles metro Area) and San Diego pretty much lost “support” by Fannie Mae and Freddie Mac due to average home prices ranging between $600,000.00 and $700,000.00 (single family home). The Orange County Register reported in September that a house that sold in 2001 for $299,000.00 did sell for $719,000.00 in August of 2005.

2. Non-Conforming Loans: Non-Conforming loans are also known as “Jumbo Loans”. Unfortunately, jumbo loans are more expensive than conventional loans. These kinds of mortgages are designed as loans go beyond the $360,000 cap mentioned previously in this article. Jumbo loans are usually capped at around $2,000,000.00 by most lenders. Non-conforming loans usually incur an origination fee premium.