Choosing the right mortgage starts with an understanding of each client’s unique situation and long term goals. The payments and type loan have to fit the first few months as well as the longer term. You want the home you really want but you need to be able to sleep easy.
Let’s look at some type loans:
The rates are fixed for the term of the loan. The most common is the 30 year fixed. The rate and monthly payment do not change and are set to pay the loan off in 360 months. This provides the safety of the payment not changing. However, the rate is higher than those where the rate can change.
In these the rate can adjust. The other term for this loan is Adjustable Rate Mortgage (ARM). These will have a rate fixed for 6 months, 1, 3, 5, 7, or 10 years. After that period is up the rate will adjust, as will the payment, based on the then current rate environment. The advantage of ARMS is that the initial rate and payment is less than a fixed loan. The downside is rates can jump and payments with it.
Conforming loans are up to $417,000 (can be lower based on county). Usually have the lowest rates and down payments can be as little as 3%
Hi Balance loans are up to $625,500 (again can be much lower depending on county). Rate a bit higher and can have 10% minimum down
Jumbo loans are over $625,500 and will require 20% down or more. The higher the loan the more down
FHA and VA
These both can go to $729,250 (again, depends on county) and minimum down is 3 1/2% for FHA and no down for VA
Mortgage Insurance (MI)
With less than 20% down you will have mortgage insurance on all but VA. It is a monthly payment in addition to the mortgage payment. It protects the lender so they are OK with less than 20% down.
With the mortgage meltdown MI virtually disappeared as did the companies that offered them. They are back due to the stricter loan approvals and rising home values.
A good thing.
There can be two loans on a home. The first one is called a “first” and the second one, can you guess? Yes, a “second”. It refers to when the loans were recorded on the house. The most popular type is a Home Equity Line of Credit (HELOC). Often a HELOC was done along with the first loan so less down was required. For example 10% down 80% “first” and 10% “second”, or 10/10/80
Of course we also had 0/20/80s (no money down). Can you guess what happened to some of those loans?
HELOCS had terrible delinquencies and nearly died but are coming back, but more carefully for all. Also a good thing. If cash for a down is tight but all else is good then we have a deal.
What’s The Rate?
The most common question I get.
See, rates can change at any time so the rate you get will be whatever the rate the day it is “locked”, not the day and hour you are asking. Choosing a lender based on quoted rates is a fool’s game as some companies will quote anything just to get the call. They don’t have to deliver on that “lowball” rate and almost never do. For the record I quote a bit higher rate than what it is at that minute. I think it is more ethical.
The other reason “it depends” is rates are based on “risk factors”. These include loan size, credit score, down payment, type loan, type property (rentals, 2-4 units homes, condos for example) and many more.
Lastly, you can “buy down” the rate by paying extra interest up front called “points”.
Talk to a loan professional who comes to you referred by someone you trust. That way you can learn what’s important for your unique needs and financial situation. You want the loan process to be as easy as possible, with competitive terms that meet your needs and closes as promised.
Ask David Garrett