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Many types of mortgage loans exist. Conventional loans, FHA loans, VA loans, fixed-rate loans, adjustable-rate mortgages, jumbo loans, and more. Each mortgage loan may require certain down payments or specify standards for the loan amount, mortgage insurance, and interest.
A conventional fixed-rate loan has the same mortgage payments over the life of the loan. A conventional loan typically requires a slightly higher down payment and can be harder to qualify for than an FHA loan. On the other hand, rates may be lower as well as closing costs. Typical fixed-rate loans are for 30, 20, or 15 years.
With a conventional fixed-rate loan, monthly mortgage insurance is usually less than other loans and may even be waived with a minimum 20% down payment.
With a fixed-rate home loan, the faster you pay off the loan, the better interest rate you may be able to get. In general, the longer a lender agrees to keep the interest rate “fixed,” the greater the risk to the lender. Therefore, the interest rate on a 15-year fixed-rate loan is slightly lower than on a 20 or a 30-year fixed-rate loan.
Of course, monthly payments for shorter-term loans are higher than a 30-year fixed-rate loan. You will need to take into consideration how much you’ll be able to pay each month when selecting the length of your loan.
WHAT YOU NEED TO KNOW
Buy a home with as little as 5% down (primary home)
Refinance up to 95% of your primary home’s value
Monthly payments remain the same for the entire home loan term
The type of loan that has monthly payments based on a 30-year repayment schedule and the interest rate remains fixed for the first few years. The interest rate (monthly payments) may change after that. This is called the “adjustment period.”
The new rate is based upon changes in a financial index and is calculated by adding a specified amount to the index. The amount that is added to the index is called the margin. Let’s say the index equals 4.5% at the time of adjustment and the margin equals 2.50%, the new interest rate would be 7%. However, adjustable loans usually have an adjustment cap. So if the adjustment cap is 2%, the new rate would be 6.5%.
There is also a lifetime cap that limits how much the rate can go up or down during the life of the home loan. These loans can work out well for people who stay in their house for the short term.
HOW LONG IS THE ADJUSTMENT PERIOD?
Monthly payments are based on a 30-year home loan repayment schedule. The rate stays fixed for the first 3, 5, or 7 years (depending on the chosen term), and then adjusting annually thereafter.
An FHA (Federal Housing Administration) loan is a loan insured against default by the FHA. In other words, the FHA guarantees that a lender won’t have to write off a loan if the borrower defaults – the FHA will pay.
FHA loans allow people to buy a home with a down payment as small as 3.5%. Other loans might not allow such a low down payment.
WHO CAN GET AN FHA LOAN?
Almost anybody can get an FHA loan, however, FHA loans
are not for everybody. Nevertheless, they are a great help to some borrowers. Although there are no income limits, there are limits on how much you can borrow. In general, you’re limited to median home prices in your area. To find the limits in your region, visit HUD’s Website.
To qualify for an FHA mortgage loan, you’ll need to have reasonable debt to income ratios. You don’t need perfect credit but you will need to have a credit score of at least 620.
WHAT YOU NEED TO KNOW
Only 3.5% down payment required on purchase
Easier to use gifts for the down payment and closing costs
No prepayment penalty
Financing for home improvement using FHA 203k programs
Post-bankruptcy qualifying – 2 years after
Post-foreclosure qualifying – 3 years after
For military veterans, a VA loan is perhaps the most flexible lending option on the market. The VA (Department of Veterans Affairs) pledges to repay about a quarter of every mortgage loan it guarantees in the unlikely event that the borrower defaults. This guarantee gives VA-approved lenders greater protection when lending to military borrowers and often leads to highly competitive rates and terms for qualified veterans.
ZERO DOWN PAYMENT
Far and away, the most significant benefit of a VA loan is the borrower’s ability to purchase a mortgage loan with no money
down. Apart from the government’s UDSA’s Rural Development home loan and Fannie Mae’s Home Path, it’s all but impossible to find another lending option today that provides borrowers with 100 percent financing.
VA mortgage rates and loans also come with less stringent underwriting standards and requirements than conventional loans. In fact, about 80 percent of VA borrowers could not have qualified for a conventional loan. These loans also come with no private mortgage insurance (PMI), a monthly expense that conventional borrowers are required to pay unless they put down at least 20 percent of the loan amount.
WHAT YOU NEED TO KNOW
Higher allowable debt-to-income ratios than for many other home loans
Streamlined refinancing loans that require no additional underwriting
Sellers can pay up to 6 percent of closing costs and concessions
Mortgage loan down payments are as low as 0%
Competitive interest rates that are routinely lower than conventional rates
No prepayment penalties
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