June 5th, 2019 9:24 AM by Jackie A. Graves
you begin your home-shopping journey, you might hear a lot about the 30-year
conventional fixed-rate mortgage. And there’s no doubt it’s a great
product for many buyers. But not all. In fact, there other mortgage options
that could be better for your needs, perhaps offering a short-term solution
(and super low rate) if you know you’re only going to live in an area for a
couple of years.
compiled information about some common and unique mortgage types to guide you
in talking with lenders about loan options. And remember, your loan could be a
combination of several types discussed here — a low down payment loan with a
fixed rate, for example.
loans are popular with those planning to stay put in their home for a while
because they offer payment stability. These loans offer the same interest rate
for the entire repayment term, normally 10, 15, 20, or 30 years. The shorter
the loan term, the lower the interest rate. For example, a 15-year fixed will
have a lower interest rate than a 30-year fixed. Of course, your monthly
payments could fluctuate if your property tax and insurance rates change, but
the interest rate itself remains the same. And should rates drop significantly,
you could refinance. The fixed-rate mortgage is the workhorse of the mortgage
world and is a good choice for many buyers who plan to live in their homes for
a long time.
An ARM is a
“hybrid” loan product — meaning not entirely fixed — so named because its
interest rate sets out fixed, and can then fluctuate, moving higher or lower
based on the benchmark interest rate.
For instance, a 5/1 ARM loan would
have a fixed rate of interest for the first five years, after
which it begins to adjust every one year, or
annually. Likewise, the 7/1 ARM would have a fixed rate for seven years, and
then adjust. Although the rates can rise, they typically start off lower than
those available for fixed-rate mortgages. An ARM is a good option if you know
you’ll only be in an area for a few years, such as for a job relocation or
during grad school.
Neighbor Next Door program encourages homeownership among certain professionals
such as police officers and teachers who they’d like to have buy a home in certain communities. The
program offers a 50% discount from the list price of the home. In return buyers
commit to living in the property for 36 months. Eligible single-family homes
located in revitalization areas are listed exclusively for sale through the
Good Neighbor Next Door Sales program. Properties are available for purchase through
the program for seven days.
their eyes on an expensive home can get in the door with a jumbo loan, which is a
loan that allows higher amounts that a conforming loan. Or buyers looking for
homes in pricey housing markets such as New York City, Los Angeles, or the Bay
Area may require one just to buy an average house. A jumbo loan will typically
come with more demanding requirements than a conforming mortgage, such as a
higher down payment, higher credit score, and two appraisals instead of one.
loan threshold is $424,100 in most of the United States, although in the
highest-cost areas they start at $636,150.
who have enough income to make their monthly mortgage payments but don’t have a
down payment saved up, there are two 100% financing options backed by the
United States Department of Agriculture (USDA) offers USDA loans, which are zero-down
mortgages for rural borrowers who meet certain income
requirements. The program is managed by USDA’s Rural Housing Service to target
“rural residents who have a steady, low or modest income, and yet are unable to
obtain adequate housing through conventional financing.” Income must be no
higher than 115% of the adjusted area median income,
which varies by county.
U.S. Department of Veterans Affairs (VA) offers VA loans, a zero-down loan program to military
service members and their families.
programs are backed by the government, banks are more likely to qualify applicants
with limited incomes and savings.
and Freddie Mac both offer 3% down loan products through
participating lenders. Buyers must meet certain credit and income requirements,
and generally have a FICO credit score of 620 or higher, or purchase property
in certain areas. These loans may offer the option to cancel mortgage insurance
once home equity reaches 20%. Homebuyer education or one-on-one counseling is
required for these products.
payment loans can help borrowers buy much sooner - even years sooner - than they would have been able to if they needed to put 10%,
15%, or even 20% down.
it, a lot of us have less-than-perfect credit scores. The good news is you
still may be able to qualify for a
loan backed by the Federal Housing Administration (FHA). Through
private lenders, FHA offers fixed-rate and adjustable-rate mortgages with 3.5%
down to borrowers with qualifying FICO credit scores over 580.
with FICO credit scores lower than 580, but at least 500, may qualify for an
FHA loan, too, but be asked to put more down. In all cases, FHA borrowers will
pay for a mortgage insurance premium (MIP) as well as an upfront mortgage
insurance premium (UMIP).
worth noting that USDA and VA loans have no minimum FICO credit score requirement.
and Freddie Mac allow “flexibilities” in some loan products lenders can use to
help borrowers with student debt qualify for a mortgage and help those with
equity refinance and use all or a portion of the proceeds to pay off their own
student debt or debt they have co-signed for.
Ask a lender
for information on these products if you think you won’t qualify because of
your student loan debt, or want to help someone get a fresh start by
paying off their debt.
One way to
economically ease into homeownership is to purchase a “fixer upper,” a home
that needs some work before you move in. There are two programs targeting those
with renovation in mind, FHA’s 203(k) mortgage and Fannie Mae’s HomeStyle
Renovation mortgage. FHA requires 3.5% down, while Fannie Mae requires 5%. With
FHA, the homeowner hires a specialist to determine the feasibility of the
renovation and oversee the project. Fannie Mae’s lenders that offer HomeStyle
also oversee the project. Because these loans are riskier for lenders, you’ll
pay a higher interest rate (typically one-eighth to one-quarter of a percentage
rate higher than for a conventional mortgage) but you’ll also have that dream
kitchen or extra bedroom.
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