Fixed Rate Mortgage
Can be described exactly as the name states, the mortgage rate is fixed for the longevity of the loan. Thirty-year notes are most popular, but terms are available from 8 to 30 years with the flexibly to choose any term in-between to suit your financial situation.
Advantages: Protection from an ever-changing market, consistent principle and interest payment, ideal for families remaining in their home 5+ years.
Adjustable Rate Mortgage
A home loan with an interest rate that can adjust based upon the market and terms of the note. Most ARM’s adjust annually, with both a yearly and lifetime cap based on the Libor. Some years, your rate may adjust to it’s max and others it may not adjust at all. Popular terms are the 3, 5, 7 and 10-year ARM’s, where the rate is fixed for those initial years and adjust after the fixed period. The payment is amortized over a 30-year term.
Advantages: ARM’s typically offer a lower initial rate, in times when mortgage rates drop, your ARM may have the ability to reduce your rate, ideal for those remaining in their home 5 or less years.
A conventional loan is a mortgage that isn’t insured or backed by the federal government or their entities. They follow the guidelines that are set in place by Fannie Mae and Freddie Mac with the ability to be traded or sold on the secondary market. Conventional loans can have either fixed or adjustable rates and loan to values (LTV) as high as 97%. Loans above 80% loan to value will carry some type of mortgage insurance either paid by the consumer or lender.
Advantages: Only a minimum of 3% down for purchases, with 20% of equity there is no requirement of mortgage insurance, if mortgage insurance is required, it can be paid by consumer or lender, wide variety of loan products including first time home buyer programs, renovation loans and income incentive programs.
Programs: Home Ready, Home Possible, HARP, Home Style, Home One, High Balance and more.
FHA loans are backed by the Federal Housing Administration; they protect the lender from financial risk as they allow for a riskier client to purchase or refinance. With higher allowances for debt to income and a lower threshold for credit scores, these loans are ideal for first time home buyers. Down payments can be as low as 3.5% but with all the positives there are some catches; FHA loans require an Upfront Funding Fee but that can be financed into the loan. In addition, there is a monthly mortgage insurance premium and, in some cases, can last the entirety of the loan.
Advantages: Lower credit score requirements, scores can be as low as 500 but will require at least 10% down. 580 and above will require 3.5% down. Allows for higher debt to income ratios.
Programs: 203B, 203K (Renovation loan) and Streamlines.
A VA loan is a mortgage backed by the Department of Veterans Affairs (VA) that allows military veterans, current service members, reservists and in certain situations surviving spouses to purchase a home with little or no money down. Available for purchases, refinances, cash out and streamlines (IRRRL). The VA loan allows for up to 100% of the home’s value to be liquidated and in most cases doesn’t require monthly mortgage insurance. Depending on the certificate of eligibility (COE) the applicant may or may not have to pay a funding fee to the VA, most instances that fee can be included in the new loan.
Advantages: 100% financing, credit scores as low as 550, higher debt to income allowances, and no money required to purchase in most cases.
Programs: Cash out, IRRRL.
A jumbo loan is a mortgage that exceeds the conforming loan limits set by Fannie Mae and Freddie Mac. Available with fixed and adjustable terms, Jumbo loans allow consumers to purchase in excess of $484,350. With the higher loan amounts, additional restrictions do apply, these can include higher FICO requirements, larger down payments, limited cash out, occupancy and reserves. Credit challenged borrowers will find it’s difficult to qualify, Bankruptcies, Foreclosures and Short Sales are frowned upon.
Advantages: Ability to purchase above loan limits.
Programs: Purchase, Refinance and Cash out.
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