LOAN PROGRAMS

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The traditional fixed rate mortgage is the most common type of loan program, where monthly principal and interest payments never change during the life of the loan. Fixed rate mortgages are available in terms ranging from 10 to 30 years and, in most cases, can be paid off at any time without penalty. This type of mortgage is structured, or "amortized," so that it will be completely paid off by the end of the loan term. 

Even though you have a fixed rate mortgage, your monthly payment may vary if you have an "impound account." In addition to the monthly "principal + interest" and any mortgage insurance premium (amount charged to homebuyers who put less than 20% cash down when purchasing their home), some lenders collect additional money each month for the prorated monthly cost of property taxes and homeowners' insurance. The extra money is put in an impound account by the lender who uses it to pay the borrower's property taxes and homeowners' insurance premium when they are due. If either the property tax or the insurance happens to change, the borrower's monthly payment will be adjusted accordingly. However, the overall payments in a fixed rate mortgage are very stable and predictable.

FHA home loans are mortgage loans that are insured against default by the Federal Housing Administration (FHA). FHA loans are available for single family and multifamily homes. These home loans allow banks to continuously issue loans without much risk or capital requirements. The FHA doesn't issue loans or set interest rates; it just guarantees against default.

FHA loans allow individuals who may not qualify for a conventional mortgage obtain a loan, especially first-time home buyers. These loans offer low minimum down payments, reasonable credit expectations, and flexible income requirements.

In 1934, the Federal Housing Administration (FHA) was established to improve housing standards and to provide an adequate home financing system with mortgage insurance. Families that may have otherwise been excluded from the housing market could finally buy their dream home.

FHA does not make home loans, it insures a loan; should a homebuyer default, the lender is paid from the insurance fund.

• Buy a house with as little as 3.5% down.
• Ideal for the first-time homebuyers unable to make larger down payments.
• The right mortgage solution for those who may not qualify for a conventional loan.
• Down payment assistance programs can be added to an FHA Loan for additional down payment and/or closing cost savings.

The main difference between an FHA Loan and a Conventional Home Loan is that a FHA loan requires a lower down payment, and the credit qualifying criteria for a borrower is not as strict. This allows those without a credit history or with minor credit problems to buy a home. FHA requires a reasonable explanation of any derogatory items but will use common sense credit underwriting. Some borrowers with extenuating circumstances surrounding bankruptcy discharged 3-years ago can work around past credit problems. However, conventional financing relies heavily upon credit scoring, a rating given by a credit bureau such as Experian, Trans-Union, or Equifax. If your score is below the minimum standard, you may not qualify.

The VA Loan provides veterans with a federally guaranteed home loan which requires no down payment. This program was designed to provide housing and assistance for veterans and their families.  The Veterans Administration provides insurance to lenders in the case that you default on a loan. Because the mortgage is guaranteed, lenders will offer a lower interest rate and terms than a conventional home loan. VA home loans are available in all 50 states. A VA loan may also have reduced closing costs and no prepayment penalties.

Additionally, there are services that may be offered to veterans in danger of defaulting on their loans. VA home loans are available to military personal that have either served 181 days during peacetime, 90 days during war, or a spouse of serviceman either killed or missing in action.

The many different types of home loans available can seem overwhelming. Should you choose a fixed rate, adjustable rate, or government loan mortgage? The truth is there is no right answer. Choosing a loan type is an important decision that is best made after you have researched your options. Remember, taking the time to explore your options now can mean saving thousands of dollars in the long run.

Ask yourself the following questions to determine what loan type is right for you:

• Do      you expect your financial situation to change over the next few years?
• Do      you plan to live in your current home for a long time?
• Do      you feel comfortable with the idea of a changing mortgage amount?
• Do      you want to be free of mortgage debt by the time your children go to college, or you retire?

A professional lender is the best resource available to help you decide which loan best fits your needs. Follow the general guidelines outlined below to get started selecting the best mortgage for your home.

How many years do you plan to stay in your home?

Plan(s) to consider:

 1-3  (3/1 ARM or 1-year ARM)

 3-5  (5/1 ARM)

 5-7  (7/1 ARM)

 7-10  (10/1 ARM or 30-year fixed)

 10+  (30-year fixed, or 15-year fixed)