Buyers
and Sellers should have some general knowledge on various financing
options. I have provided basic definitions, for more information and
what types of mortgage will work for the sale or purchase of your
home you will have to contact a lender. I can always recommend a
reputable mortgage professional if you haven’t already chosen
one.
All
mortgages are called conventional unless they are government-backed
loans. Conventional Mortgages: are made by private lenders.
Mortgages
are generally available at 15, 20, or 30 year terms.
Conventional
fixed-rate mortgages:
Constant
interest rate and level, equal payments during a set period of time,
most commonly 30 years. Down Payments are 5% and
higher.
Adjustable-rate Mortgages (ARMs):
The
interest rate on an adjustable-rate mortgage changes throughout the
term to stay current with the present interest rates. ARMs are most
popular when rates are relatively high and appear to be dropping and
when the difference between the ARM and the fixed-rate is greater
than 2 to 3 percent. Different lenders offer variations in the front
end of their ARM plans, such as the points you pay or discounted
initial rates.
To
make a useful comparison of an ARM rate, consider the index upon
which the rate is based, the margin or spread between that index and
the rate paid, and the intervals at which the rate and payments are
adjusted.
Note:
Always look at the index plus the margin when comparing ARMs. The
larger the margin, the less likely the rate you pay will go down,
even if the interest rates drop.
Balloon Mortgages:
Balloon mortgages offer very low interest rates for a short period of time—often three to seven years. Payments usually cover only the interest, so the principal owed is not reduced.
Federal
government programs:
Federal
Housing Administration (FHA) insured loans
Lenders
offer FHA mortgages on a new or existing single-family home for as
little as 3.5 percent down. FHA mortgages are also assumable.
Sometimes a premium is required when the mortgage is assumed, then
refunded when the note is paid off.
Veterans
Administration (VA) guaranteed loans:
The
Veterans Administration guarantees lenders against loss if a property
is foreclosed due to default. These assumable loans are available to
eligible veterans and may be used to buy, refinance, construct or
repair a house. No down payment.
Farmers
Home Administration (FmHA) loans /USDA:
The
government makes these loans available to persons of moderate to very
low income in rural or non-metropolitan areas. No down payment. There
are income caps and guidelines as well as property location
requirements.
You
should also discuss in detail with your mortgage lender the reason
you are currently buying. How long you plan to stay in the home and
your over all financial status so they can best assist you with
choosing the right mortgage that fits your needs.
Note: Down Payments secure your mortgage, closing cost are separate and additional. In our local area closing cost typically run about 5-6% of the purchase price of the home.