The Many Different Types of Mortgage Notes

Mortgage notes are the documents that represent the homeowners’ promise to repay the loan according to the outlined conditions and terms. This may also be used to represent that cash value, or original loan amount, of the mortgage loan. When taking out a home-loan or refinance loan, a person will sign both the note and a deed of trust. These two documents together will establish the total debt for the house, and the lender’s security in the home, though there are many different types and variations of these loans that should be considered.

Individual notes that meet the standards and guidelines of the government backed agencies that are the biggest buyers of these loans are known as conforming mortgages. As of June 2010, the limit on these conforming loans for a single-family home in most states across the country was $417,000.Some states with higher costs of living, like Hawaii, can be up to 50 percent higher, for obvious reasons.

At the other end of the spectrum are non-conforming mortgage notes, which do not meet guidelines that will allow the lender to sell it to Freddie Mac, Fannie Mae, or any other potential note buyer. These loans will be considered non-conforming since the loan amount will usually be higher than the county limit for where the property is located. Though these loans are uncommon nowadays, jumbo loans are under this umbrella, and are very commonplace today.

A loan which is bigger than the limit that is set by the government for conforming loans is known as jumbo, and usually will cost more to obtain, as the lender has more to lose. These mortgage notes can go up to $1.5 million, though they cannot be sold to the largest note buyers of mortgages. Due to the low resale demand for these types of note pools, lenders will charge higher interest rates, with increased criteria that must be met to qualify.

A conventional mortgage is one that is both backed and underwritten by Freddie Mac and Fannie Mae. These types of mortgage notes will require at least 5% down, and usually a credit score around 700. Available in both 15 and 30 year terms, with either a fixed rate or variable option, these conventional mortgage notes will have many more options when dealing with rate structure, payment options and duration of the loan.

A VA, or Veteran’s Administration loan, will be back and underwritten by the government of the United States. The VA program was created to allow military veterans the opportunity to buy a home with 0 percent down payment and usually less than stellar credit scores. Though there is a large upfront funding fee of 2.75% for this type of loan since it is riskier to the lender, it should help the potential buyer free up cash for moving and furnishing expenses associated with the new home.

As discussed, when a person finances a house or any other real estate venture, a lender will offer mortgage notes or a deed of trust, depending on the state laws in which the property is located. Sometimes both will be required, which could affect the legal rights should a person fall behind on the monthly payments. With some basic research, the above tips, and the new strict guidelines facing these lenders, any borrower will be sure to get a loan that is customized for their specific financial situation.