Which Home Mortgage is Best For You?
Category : Sales
When it comes to purchasing a home, unless you are paying cash or inheriting a long lost relatives estate, you are going to need to get a mortgage for your new dream home.
The next question of course is, which home mortgage is best for you?
Fortunately, for the home buyer who is seeking a loan for their mortgage, there are several products out there that can fit the needs of just about every buyer there is.
I am going to go over the most common products here.
This loan program is ideal for the buyer who has good or excellent credit. Typically, a minimum of 5% down is required and that amount can vary depending on the price of the home.
A conventional mortgage is fairly simple and follow somewhat conservative guidelines regarding a borrowers credit rating, down payments and debt-to-income ratios.
(an individuals debt-to-income ratio is a percentage of their monthly income compared against their monthly revolving expenses such as rent or mortgage, car payments, student loans, credit card payments and child support, as a few examples)
The cost of a conventional mortgage includes closing costs, down payment for the property, mortgage insurance and then the closing costs.
Want to know more about closing costs and how to save money?
The good thing about a conventional mortgage is that there are generally fewer hurdles the buyer has to jump through to get to closing than if they were to choose and FHA or VA mortgage.
The negative about a conventional mortgage is that you will need excellent credit to qualify for the better interest rates.
An FHA mortgage is a home loan that is backed and insured by the Federal Housing Administration. In essence, this is a government loan. An FHA mortgage is designed to protect the lender, not the borrower, in the event the borrower defaults on their mortgage. By using an FHA mortgage, this assurance of a government backed load, or insured loan, enables the lender the options of providing more options and benefits that would not be otherwise available if choosing a conventional loan.
Somewhat similar to an FHA mortgage, an VA mortgage or Veterans Affairs mortgage is a loan program designed and offered to those men and women who have served in the U.S. military. A VA mortgage is also a government loan.
To qualify for VA mortgage, a person must:
Served 90 consecutive days of active duty service during wartime.
Served 181 days of active duty service during a time of peace.
Have served more than 6 years in the National Guard or Reserves.
You are the spouse of a service member who has died in the line of duty or as a result of a service related death or disability.
A Jumbo mortgage is also known as a nonconforming loan. A Jumbo mortgage has the advantage that is allows the borrower to receive a loan that would exceed the typical Fannie Mae or Freddie Mac loan limits. A Jumbo mortgage typically requires a a higher credit score, somewhere in the neighborhood of FICA 720, but the downpayment amount may be a lesser percentage than the typical conventional loan requirements. For a Jumbo mortgage, the buyer should be prepared for and expect additional fees and more restrictions due to the higher loan amount.
A non-conforming loan is a mortgage that would not otherwise be eligible for resale to Fannie Mae or Freddie Mac programs due to the nonstandard conditions and features of the loan. Non-conforming mortgage are more than likely and often sold to a secondary market and private investors and sometimes held in the lender’s portfolio as a asset.
A non-prime is a term used to describe and identify those loans that do not typically fit within the standards and policies of a government lending standards commonly referred and know as Prime, Agency or A-Paper Lending and defined as Qualified Mortgages.
A Non-Prime loan are also commonly referred to as temporary or fixer-loans for those borrowers who are not yet able to qualify for a Prime loan. Those borrowers who have credit issues, foreclosure(s), bankruptcy(ies), short sale(s), late payments, slow payments, collections, charge offs and situations similar to those. A Non-prime loan will typically have a higher interest rate and higher or additional costs associated with the loan. A Non-prime loan should only be considered by those who are looking for a temporary solution to their current financial situation.
Fixed Rate Mortgage
A Fixed Rate mortgage is a mortgage loan that has a set, predetermined and fixed interest rate for the entire term of the mortgage loan.
Adjustable Rate Mortgage
An Adjustable Rate mortgage, also commonly referred to as an ARM is a mortgage loan that has an adjustable interest rate. An ARM is also commonly referred to as Variable Rate mortgage. This will create a mortgage payment that will vary periodically during the life and term of the loan. The amount of the interest rate, and the resulting mortgage payment will vary and depends on the fluctuation of an index factor. An Adjustable Rate mortgage will allow a lender to typically charge a lower interest rate at the beginning of the mortgage term, to make the product more attractive to the borrower. There is almost always a rate cap to protect the borrower from exceedingly high interest rates along the term of the loan.
Always consult with your lender for any questions regarding the loan or mortgage process.