Types of Home Loan Products

To assist in understanding what financing options are available to homeowners or homebuyers, a quick guide to commonly used terms and references is available in the lower portion of this webpage.

Adjustable Rate Mortgage (ARM) - An ARM is a loan that adjusts periodically after an initial fixed-rate period, typically to a term of thirty years. The fixed-rate period can last anywhere from one month to ten years, and can adjust at different intervals (every month, every six months, every year) depending on the program. After the fixed-rate period is over, the ARM adjusts to the total of the margin (a fixed number) and the index (an adjustable number), to arrive at the 'fully-indexed' rate. The index can vary month to month, and the specific index (T-bill, LIBOR, etc.) used will be determined by the loan program that you have selected. Certain ARM programs allow for an interest-only payment option - check with your loan officer for details.
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Fixed Rate Mortgage - A fixed-rate mortgage is just that - a fixed interest rate that does not change during the life of your loan. The most common fixed-rate loans have a term of 15 or 30 years, but also available are 10, 20, and 25 year fixed-rate mortgages as well.
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Full Doc Loan - The most prevalent loan type, a fully documented loan, is one where the investor will ask for documentation of income, assets, and employment from the applicant(s). Standard requests to verify income are for two years of W-2's, a verification of deposit (VOD) to verify funds in checking/savings/other accounts, and two years employment in the same line of work. There are cases where the investor's requirements are less stringent, usually because the investor allows for automated underwriting to help streamline the documentation process. A multitude of fixed-rate and ARM products are available for borrowers who are able to go full doc.
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Stated Income Loan - Also known as No Income Verification (NIV) loans, these loan programs exist for borrowers who are not easily able to document their income. This can be due to self-employment, multiple streams of income, or other factors that make it impractical to furnish all the documents required to verify your true earnings. There are many different types of loan programs - both fixed-rate and ARM - that are available. Borrowers still need to verify two years of employment, and verify assets through the same method (VOD) as above. Typically, the borrowers' credit score needs to be higher to qualify for a Stated Income loan vs. a Full Doc loan, due to the lesser level of documentation in the file. Additionally, though rates for Stated Income loans are slightly higher than a Full Doc loan, they are still very competitive.
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Negative Amortization (Neg-Am) Loan - These loans are not recommended for most people.  A Neg-Am loan is an adjustable rate mortgage (ARM) that has a very low start rate, and allows for interest-only payments. Once the loan starts to adjust (after the fixed-rate portion concludes), Neg-Am loans allow for the borrower to continue to make interest-only payments at the start rate, even if their fully-indexed rate is higher than what their start rate was. This results in interest accruing on the outstanding loan balance on a monthly basis, and increases the interest portion of the following payments. Typically, investors who provide Neg-Am loans allow for these payments to be made for a certain period of time (usually five years) before they require regular principal-and-interest payments to be made.
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No Income/No Asset (NINA) Loan - A NINA loan does not verify income or assets, but does verify employment for at least the past two years. A borrower may wish to utilize a NINA loan program if they are self-employed and have their assets tied up in their business (most lenders require assets to be in a personal account to be counted towards loan qualification). Since the documentation on this style of loan is lesser than Full Doc or Stated Income, credit score qualifications are typically more stringent, and rates are just a bit higher than for Stated Income/NIV loans. Fixed-rate and ARM programs exist for this style of loan.
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No Doc Loan - As the title suggests, the No Doc loan does not document anything - no income, assets, or employment needs to be verified to qualify for the loan. This loan is perfect for someone who is recently self-employed, and cannot verify two years of employment. Due to the minimal documentation on this loan program, the credit standard for these loans is higher than all other doc types. There are also fewer loan programs that allow for a true No Doc option.
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