| Loan Programs |
The Good |
Items To Consider |
 |
| Fixed Rate Mortgages | top^ |
40 year fixed
30 year fixed
15 year fixed
|
- Monthly payments are fixed over the life of the loan
- Interest rate does not change
- Protected if rates go up
- Can refinance if rates go down
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- Rate does not drop if interest rates improve
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| Adjustable Rate Mortgages | top^ |
10/1 ARM
7/1 ARM
3/1 ARM
1 year ARM
6 month ARM
1 month ARM |
- Rates and payments may go down if rates improve
- May qualify for higher loan amounts
|
- More risk
- Payments may change over time
- Potential for high payments if rates go up
|
| Balloon Mortgages | top^ |
7 year
5 year |
- Lower initial monthly payment
- Lower payment over a shorter period of time
- Many balloon mortgages offer the option to convert to a new loan after the initial term.
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- Risk of rates being higher at the end of the initial fixed period
- Risk of foreclosure if you cannot make balloon payment or if you cannot refinance or if you cannot exercise the conversion option
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| VA Mortgages | top^ |
| |
- Do not require a down payment, unless the purchase price is more than the appraised value or in excess of $240,000.
- Negotiable fixed interest rate that is competitive with conventional mortgage financing.
- Limitations on which closing costs may be assessed to the veteran.
- May be prepaid without penalty.
- May have forbearance extended to worthy VA homeowners experiencing temporary financial difficulty
- Do not require mortgage insurance premiums.
- The seller may pay ALL of the veteran's closing costs
|
- VA home loans require the veteran (or the seller) to pay a funding fee.
- Higher loan amounts reduce the available equity position of the veteran.
- Co-borrowers are restricted to qualifying veterans and spouses of qualifying veterans only.
|
| FHA Mortgages | top^ |
| |
- Lenders look more favorably at the terms since the government is backing up the loans.
- Down payment as low as 3%
- Sellers are allowed to pay up to 6% of the purchase price to cover the closing costs.
- Allows for non-owner occupied co-borrowers on the loan, with no penalty.
|
- For 'first-time' homebuyers only.
- Upfront premium of 1.5% (can be financed) and 0.5% per year for 5 years is to be paid to cover the insurance regardless of LTV.
- Strict income to debt ratios capped around 41%.
|
| Piggy-back Mortgages | top^ |
80/20
80/10/10
80/15/5 |
- Allows for little or no down payment
- Avoids requirement of mortgage insurance
- Higher interest vs PMI could allow for a tax advantage.
|
- Higher overall interest rate
- No equity in the property unless market values dramatically climb during the early years of repayment.
|
| Interest-Only (IO) Mortgages | top^ |
| |
- People who expect to make a lot more money in the near future.
- People who's income takes the form of infrequent bonuses or commissions and will use those bonuses and commissions to pay down principal.
- Practiced investors who are confident that the money that would be applied to principal payments, will instead be used for investments that will return a higher rate than the property's equity growth.
- Allows for more interest to be deducted from tax liability(if applicable) each year.
|
- If property value decreases dramatically, borrower could end up having difficulty selling or refinancing the property.
- Adjustable rate IO mortgages present more of a risk if rates climb.
- Many people will not invest the money saved nor pay extra money toward principal payments.
- Anticipating income increases may fall short.
- Anticipating home appreciation may fall short.
|
| First Time Buyer Programs | top^ |
| |
- Lower down payment
- Easier to qualify
- Sometimes you may get lower rate
|
- May be subject to income and property value limitations
- Some programs which have government subsidies may have a recapture tax if you sell the house too early.
|
| Stated Income Programs | top^ |
| |
- Don't need to verify income
- Faster approval
|
- Higher rates
- Higher down payment
|
| No point, No fee Programs | top^ |
| |
- No closing costs
- Less money required to close
|
- Higher rates
- Higher payments
|
| Imperfect Credit Programs | top^ |
| |
- Potential for reestablishing credit if you pay your mortgage on time.
- When used for debt consolidation, you may be able to reduce your monthly debt payment
|
- Higher rates
- Terms may not be as favorable
- Harder to get long term fixed loans
- Loans may have prepayment penalties
|
| Home Equity Line of Credit | top^ |
| |
- You only borrow what you need
- Pay interest only on what you borrow
- Flexible access to funds
- Interest may be tax deductible
|
- Rates can change. The maximum interest rate is normally high.
- Payments can change
- Harder to refinance your first mortgage
|
| Home Equity Fixed Loan | top^ |
| |
- Fixed payments
- Interest may be tax deductible
|
- Higher interest rates than on 1st
mortgages
- Harder to refinance your first mortgage
|
| Construction Permanent (CP) Loan | top^ |
| Construction to Permanent
|
- Allows a homebuyer to purchase a home site, secure financing of the contruction of the home and provide permanent financing with one loan closing.
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- Builder cannot begin construction until the closing of the Construction Permanent loan occurs.
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Equal Housing Opportunity