Types of Mortgages from 2017
Look for changes in 2018, but here are types of mortgages. It can be confusing and overwhelming to figure out which mortgage is best for you. With the right people helping with you through the process you can find the one that suits your needs. We have people that can help with any questions you may have regarding mortgages.
⦁ Option 1: Fixed vs. Adjustable Rate
⦁ Fixed-rate mortgage loans have the same interest rate for the entire repayment term. The size of your monthly payment will stay the same. This is true even for long-term financing options, such as the 30-year fixed-rate loan.
⦁ Adjustable-rate have an interest rate that will change or “adjust” from time to time. Typically, the rate on an ARM will change every year after an initial period of remaining fixed. A hybrid ARM loan is one that starts off with a fixed or unchanging interest rate, before switching over to an adjustable rate.
⦁ Pros & Cons: The ARM loan starts off with a lower rate than the fixed type of loan, but it has the uncertainty of adjustments later on. With an adjustable mortgage product, the rate and monthly payments can rise over time. The primary benefit of a fixed loan is that the rate and monthly payments never change. But you will pay for that stability through higher interest charges, when compared to the initial rate of an ARM.
⦁ Option 2: Government-Insured vs. Conventional Loans
⦁ A conventional home loan is one that is not insured or guaranteed by the federal government in any way
⦁ Government-insured home loans include:
⦁ Federal Housing Administration (FHA) loans are available to all types of borrowers, not just first-time buyers. The government insures the lender against losses that might result from borrower default. ADVANTAGE: This program allows you to make a down payment as low as 3.5% of the purchase price. DISADVANTAGE: You’ll have to pay to mortgage insurance, which will increase the size of your monthly payments.
⦁ The U.S. Department of Veterans Affairs (VA) offers a loan program to military service members and their families. The VA will reimburse the lender for any losses that may result from borrower default. The primary advantage of this program is that borrowers can receive 100% financing for the purchase of a home, this means no down payment.
⦁ The United States Department of Agriculture (USDA) offers a loan program for rural borrowers who meet certain income requirements. Income must be no higher than 115% of the adjusted area median income, which varies by county.
⦁ Option 3: Jumbo vs. Conforming Loan
⦁ A conforming loan is one that meets the underwriting guidelines of Fannie Mae or Freddie Mac, particularly where size is concerned. Fannie and Freddie are the two government-controlled corporations that purchase and sell mortgage-backed securities (MBS).
⦁ A jumbo loan exceeds the conforming loan limits established by Fannie Mae and Freddie Mac. This type of mortgage represents a higher risk for the lender, mainly due to its size. As a result, jumbo borrowers typically must have excellent credit and larger down payments, when compared to conforming loans. Interest rates are generally higher with the jumbo products, as well.
Original article can be found at this link: http://www.homebuyinginstitute.com/mortgagetypes.php