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Get
the Loan of Your Dreams for the Home of Your Dreams
You’ve found the
home you’ve been hoping for! And now it’s
time to figure out how you’ll finance it. This
information should help you make informed decisions
that you’ll be comfortable with for a long time.
Fixed
Rate Mortgages: Simple and Predictable
For those who prefer no
surprises, the fixed rate mortgage is a popular choice.
The loan is based on an interest rate that stays the
same throughout the life of the loan so you’ll
always know how much of your budget you can expect to
spend. Most fixed rate mortgages have monthly principal
and interest payments that do not change.
Adjustable
Rate Mortgages: Flexible, Like Their Name
Many consumers prefer
ARMs during times of increasing rates or when they don’t
plan to stay in their home for more than a few years.
Initially, adjustable rate mortgages allow you to take
advantage of rates that are generally set below current
fixed rates. In exchange for the discount, you share
a portion of the risk that rates may change over time.
Generally, the rate adjusts up or down as the economic
indicator on which the loan is based rises or falls.
FHA/VA
Loans: Reduced Down Payment Programs
The purpose of both of
these programs is to make home ownership easier to achieve
for qualified buyers. FHA loans are insured by the Federal
Housing Administration, a government agency, and are
limited to homebuyers who meet certain guidelines. VA
loans are for qualified veterans of the armed services,
including reservists and unmarried surviving spouses
of veterans. Under the VA single-family program, fully
qualified veterans may be able to buy a home with no
down payment at all.
Jumbo
Loans: For Larger Homes
Different form other loans,
the jumbo loan is set up specifically to accommodate
mortgage amounts in excess of $333,700, although this
amount is reviewed annually. Jumbo loans typically carry
a higher-than-average risk to the lender. So to make
up for this risk, slightly higher interest rates may
apply.
Balloon
Mortgages: Uniquely Adaptable
Your payment on this loan is calculated on a
longer term (15-30 years), with the agreement that the
mortgage be paid in full with a balloon payment at the
end of a predetermined period, generally five to seven
years. The advantage of this loan is that interest rates
are generally set below current market rates. In principle,
the balloon payment would force you to pay a large amount
within a short time. Many balloon mortgage borrowers,
however, refinance their loan before the balloon payment
is due. This type of loan is popular for those who intend
to resell their home before the balloon term is over
because they may be able to save money paying the reduced
rate.
Bridge
Loans: Great for Relocating
This type of loan is used
for the person who is relocating. It allows you the
chance to buy your new home without having already sold
your old home. When your old home sells the bridge loan
will be changed to a conventional mortgage.
Construction
Loans: For Building Your Home
Construction loans are used when you purchase
a piece of land and would like to build your home. The
money for this loan is released in draws and is paid
to the contractors when they complete stages of the
construction. When the home is complete, your loan will
roll into a conventional mortgage.
Two-Step
Loans: Great for Fast Movers
Two-steps are adjustable
rate mortgages that have only one adjustable during
the loan term. They let you take advantage of a reduced
start rate of an ARM while still enjoying the security
of a fixed rate for some time. The adjustment does not
usually occur until several years into the loan term,
so two-steps are particularly attractive to buyers who
do not plan to stay in their new home for more than
a few years.
Buy
Downs and Buy Ups: To Customize Your Loan
Buy downs and buy ups are not
loans, but rather options that let you personalize your
loan for your needs by paying more or fewer points.
A buy down is a way to reduce the interest rate on you
loan either temporarily or permanently by paying additional
points at or before closing. You may be able to qualify
for your loan at a reduced rate, making a buy down a
valuable tool if you need a lower rate and have extra
cash available. A buy up works the opposite way. It
lets you reduce or eliminate the points paid at closing
in exchange for a higher interest rate. This “zero
point “ option is popular with borrowers who are
short on cash, especially first-time buyers.
The
Term: In Easy Terms
In short, the term is the length
of your loan. Usually terms are 15 or 30 years, and
of course, each has its benefits. A shorter term carries
a lower rate and higher monthly payment, But more money
is saved over the long run while you build equity at
a faster pace. A longer term carries a higher interest
rate and a lower monthly payment, so it makes a longer
mortgage more affordable, however, you build equity
at a slower rate. Other terms, such as 20 or 25 years,
are often available, too, depending on the type of loan
you select. |
