The following information is included for general informational purposes only. Much loan information is regional specific, varying from location to location. Ask your lender about specific information as it applies to your situation. If you have yet to select a lender, your real estate agent can point you in the right direction.
Determining your wants and needs is the first step to identifying the right loan for you. Is it important to you to have your payments remain the same every month, or are you more concerned with having a lower initial interest rate? There are pros and cons to each of these types of loans.
VA loans
The Veterans Administration provides zero-down home loans to those who have valiantly served in defense of our country. For all others, the choice is typically between an FHA loan and a Concentional loan - see below:
FHA loans
The Federal Housing Administration (FHA) was established as a quasi-governmental organization to encourage home ownership in the USA by providing access to affordable home loans. After the housing crisis of the last decade, when home loans from private banks became all but impossible to obtain, the FHA provided an invaluable service to keep our property markets alive. Fortunately, private banks are now lending to home-buyers once again. Those buyers who are putting less than 20% down are well advised to compare the relative costs involved in paying on an FHA loan rather than a Conventional loan. The quoted interest rate on an FHA loan may be a little lower than the rate on a Conventional loan, but the mortgage insurance payments may be quite a bit higher. So, do enquire about all the costs involved and not just the rate!
For a complete overview of FHA loan types, see:
http://www.fha.com/fha_loan_types.cfm
Please view the display below for FHA loan limits in our local counties:
Conventional loans
Private banks are once again making these available to home buyers. The rates quoted on them may be a little higher than those quoted on an FHA loan. However, private mortage insurance payment charged by the banks is typically a little lower than the mortgage insurance premium payments required by the FHA.
If you have 20% to put down on the purchase of your house, you will almost certainly want to get a Conventional loan.
Fixed Rate Loans
With a fixed rate loan, your principle and interest portion of your monthly payment stays the same every month, despite interest rate fluctuations in the market. This allows you to easily calculate your monthly expenses without worrying about fluctuating loan payments. It is important to note that taxes and insurance rates do fluctuate. The interest rates quoted for fixed rate loans are usually higher than those quoted for adjustable rate loans. The loan period is usually for 15 years or 30 years, but other pay-off periods are available.
Variable Rate Loans
A variable mortgage, sometimes called an adjustable rate mortgage (ARM) can be procured with a lower initial interest rate than a fixed rate mortgage. This type of loan can be attractive to homebuyers that plan to move in a few years and are not concerned about possible interest rate increases. People who are confident that their income will increase faster than potential increases in the market rate also like to take advantage of this type of loan.
This type of loan's interest rate may be fixed initially for a certain number of years and is adjusted periodically (usually annually) to keep in line with changing market rates. If US Treasury interest rates increase, so do monthly payments. Conversely, payments drop when interest rates decrease.
Before deciding on this type of loan, it is important to know how much mortgage payments can increase. ARMs are designed with two caps, or limits, to the amount by which payments can increase.
The first cap limits the amount an interest rate can increase during each adjustment period. For example, an ARM that adjusts annually may have a 2% cap. The adjusted interest rate can never increase more than 2% from one year to the next.
The second cap limits the total amount of interest adjustments during the life of a loan. If an ARM has a 6% lifetime cap, a borrower may be confident in knowing they will never be required to pay more than 6% above the original rate. For example, an ARM with an initial rate of 5% and a 6% lifetime cap will never be bare and interest rate over 11%.
In addition, you will want to know about both the "margin" on the mortgage note and what it is added to in order to arrive at the interest rate you wil be charged whenever your loan rate is adjusted. For example, there may be a 2.5% margin added to the average of the one year Treasury note rate over the prior twelve months. Let's say the latter average is 1%. Add the 2.5% margin to 1% and the calculated rate will be 3.5%. However, if interest rates have been increasing and the average one year Treasury note rate over the prior twelve months stands at 3% when your note rate is adjusted, then your new loan rate will be 5.5%
Jumbo Loans
Jumbo, or non-conforming, loans are designed for homebuyers who need larger loan amounts than those allowed for in the standard conventional loan market.
Conventional lenders typically insist that the borrower puts down more than 20% on jumbo loans. Interest rates on jumbo loans generally run higher than conforming loans.
First Time Homebuyers
Many first time homebuyers can benefit from FHA and VA government loans or other programs (such as New Mexico's Mortage Finance Authority (MFA) Loans), based on location &/or income. Often, these mortgages require less income to qualify than conventional financing, possibly because the rates are lower &/or no mortgage insurance payments are required. There may even be some down payment assistance.
The MFA's HERO loans are specifically designed to give assistance to those employed as a safety worker, health care worker, educator, or an active member of the Armed Forces
Call me for further information, or speak to your lender to determine if you meet the qualification criteria for any of these loan types, and which is best for you!
|
