Mortgage 101
In the midst of the concern and confusion, what’s the best mortgage strategy today for you? Understanding common mortgage products before you see a lender, gives you the added knowlege of your options. This comfort level knowledge may allow you the borrower, to better listen to the benefits and potential pitfalls of each, and most importantly, for whom they’re best suited. Mortgage knowledge can help you make the best financial decision.
30 Year FIXED - This mortgage has an interest rate that does not change during the 30 yr life of the loan, and is the most common type of mortgage. Since the interest rate does not change, it provides stability and security for the borrower.
A closer look - the borrower's credit score affects the interest rate a lender will offer. Lower scores/higher rate and this is a 30 year fixed loan that will not change even if the rates go down and credit scores go up.
Best for home buyers wanting a stable long term predictable monthly payment and planning to stay in the home for an extended period.
ARM's - ADJUSTABLE rate mortgage -This mortgage has a fixed interest rate for a set period. The fixed portion can range from a short as one month to 3yr, 5yr, 7yr and even a 10 year. This fixed rate will then adjust to reflect the current prevailing interest rate. Many include an interest only* payment feature.
A closer look - Although payments may be lower during the fixed timeframe, the rate may adjust to a higher and unaffordable payment.
*Interest only loans are best for the disciplined borrower with variable incomes and significant investment strategies using monies saved for targeted wealth building. Borrower's wanting a lower payment by using the interest only option should be cautious.
FHA loans are backed by the federal government with generous credit guidelines, allowing lower down payments for first time buyers. FHA loans offer a number of different loan products ranging from adjustable rate mortgages to fixed-rate mortgages.
A closer look – FHA loan programs have lower down payment requirements and credit worthyness of the borrower less stringent. This criteria may require boworrers to pay upfront mortgage insurance premiums as well as monthly insurance premiums.
Best suited for the first time home buyer and those with limited monies for a down payment.
VA LOANS - Veteran loans are available through most lenders and are available to some veterans, active service, reservists and some members of the Public Health Service.
A closer look - VA loans require no down payment and lender fees are limited by the government but a one time funding fee of 1.25%-3% is usually rolled into the loan.
Best for veterans with limited or no downpayment.
PIGGYBACK - the piggyback mortgage combines the use of a first and second mortgage when purchasing or refinancing a home. Not all piggybacks are 100% financing. Borrows choose the piggyback loans to avoid the mortgage insurance requirement imposed on loans with less that 20% down. Typically the borrower will finance 80% of the sales price and the remaining 20% in a second mortage, or another version depending on the available funds for a down payment.
A closer look - Credit worthyness has been tightened, with scores typically over 680 are required. The fixed rate on the first mortgage and eliminating the second mortgage eventually. Addtionally, in most cases the payment on the second mortgage is lower than the mandatory monthly mortgage insurance.
Best for borrowers with good credit and the potential of future funds available to pay off the second mortgage.
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