Financial Options

Whether you’re buying your first home or you’re interested in refinancing your existing home, this is where you’ll learn all about the basics of financing. There are many different types of home loans that you may get. Here is a sampling of the most popular:
Fixed-rate. The interest rate is set at the time the mortgage is obtained and does not change for the life of the loan.
Adjustable-rate mortgage (ARM). The interest rate fluctuates up and down depending on market conditions, with the beginning rate always lower than fixed-rate mortgages. Buyers who need a lower interest rate or monthly payment to qualify typically look for this type of loan.
FHA/VA. These Federal Housing Administration/Veteran’s Administration loans offer low to no down payment. Qualifications, however, are strict. To get a VA loan the borrower must have been on active duty Military during specific periods of time. Check with your lender.
Two-step. A 30-year mortgage that is fixed-rate for the first few years, then switches to an adjustable rate. For example, the interest rate might be fixed for the first 3, 5, 7 or 10 years. After that period, it switches to an adjustable rate. The advantage is that the short fixed-rate period results in a lower initial interest rate. For example, a 10-year fixed two-step might have an initial fixed rate that is 1/8% lower than market. A 3-year fixed two-step might have an initial interest rate that is 1û2% lower than market.
Conforming. A mortgage that conforms to the underwriting standards of the two major secondary lenders, Fannie Mae and Freddie Mac. Currently the maximum loan amount is $240,000. These are considered the best loans because they offer the lowest interest rate. However, they only go to the most qualified buyers. They may be “fixed-rate,” “ARM,” or some hybrid.
Jumbo. A loan for more than the maximum conforming amount (above). These loans can be for huge amounts, sometimes up to a million dollars, or more. They usually carry a slightly higher interest rate.
Sub-prime. A mortgage made available to a borrower who has credit problems. Also called “B” or “C” loans, they usually carry a significantly higher interest rate than for prime mortgages and are for a lower LTV (see above). Only certain lenders offer them. Check with your mortgage broker.
Reverse annuity (or Equity). Offered to seniors who own their home outright or only owe a small balance on the existing mortgage. These allow the borrower to receive a monthly payment from the lender, usually for life. When the borrower dies, the lender sells the home to pay off the mortgage.
125% mortgage. Where the amount of the mortgage (LTV) is for more than the appraised value of the property. These are usually combined real estate and personal property loans. Be sure to check with your accountant before getting one, however, as part or all of the interest may not be tax deductible. If you need to sell soon after obtaining the mortgage, you will likely have negative equity in the property (you will owe more than the home is worth).
Second mortgage. An additional mortgage, besides the first. Can be obtained from an institutional lender. When given by the seller in lieu of cash from the buyer, they are usually considered part of “creative financing.”
Low-doc/No-doc. Where the borrower needs only minimum documentation of income to qualify. Designed primarily to help self-employed borrowers. Not always available and not from all lenders.

Every buyer has different wants and needs. Everyone has different financial situations. This is why I highly encourage meeting with a highly qualified mortgage lender. Call me or email me today so I can connect you with one.