Your mortgage loan cheat sheet!

Posted: May 25, 2017 at 2:35 am

Whether you’re buying a home or just want to refinance to save money, there are plenty of loan options for you. Here’s a cheat sheet to get you started.

For more specific information and options, contact me!

Term:

30-year

The vast majority of mortgages are amortized over 30 years, which means that there is a schedule of payments (whether they’re fixed or adjustable at some point) until the loan is paid down to $0.

20/40/50-year

However, there are sometimes 20 and 40-year amortized loans available on the market. In the past, there were 50-year-amortized loans as well.

15-year

Additionally, 15-year fixed amortized loans are common, which allows the borrower to pay their loan off within 180 payments, saving the borrower significant money in interest payout.

 

Types of mortgage loans:

Purchase

A borrower is purchasing a home with a first position loan for the purchase price less the down payment.

Rate & Term Refinance

An existing homeowner obtains a new loan for the benefit of a lower interest rate, better terms, some sort of monthly payment savings or financial benefit.

Cash-Out Refinance

Refinancing for the purpose of liquidating equity without selling the property. Cash-out refinances are usually only possible if the home has increased in value, creating equity, or if the borrower invested a large down payment upon purchase.

Renovation Loan

These specific purchase or refinance loans cover the purchase price/existing loan amount plus a certain amount for planned renovations that will improve the home’s value.

 

Interest Rate Options:

Fixed rate mortgage

The interest rates are fixed for the entire term of the loan, so the payment remains the same as long as property tax and insurance payments don’t fluctuate.

The benefit is that payments won’t go up if interest rates rise or values drop.

ARM (Adjustable Rate Mortgage)

With ARMs, the interest rate is adjusted periodically based on certain market conditions, like a popular financial index. However, many ARM loans have an introductory period where the interest rate and payment are fixed before adjusting. ARMs commonly come with 5-year fixed periods, but 2-year, 3-year, 7-year, and even 10-year ARMs have been offered.

ARM loans keep the cost down at first, but the borrower takes a risk that rates can go up when the fixed period expires depending on the index.

 

Loan amount: 

Conforming loan amount:

The loan amount lies below the conforming loan limit, which varies for different regions of the country.

In most of the United States, the conforming loan limit was $417,000 but raised to $424,100 in 2017.

In areas where 115% of the local median home value exceeds the baseline loan limit, the maximum area loan limit will be higher.

According to the Federal Housing Finance Agency, “The new ceiling loan limit, which applies in areas with the most expensive homes, will be $636,150 (150 percent of $424,100) for one-unit properties in the contiguous U.S.”

You can see the maximum conforming loan limit by county here.

Jumbo loan:

If a loan amount exceeds the conforming loan limit in that area, the only option available is a jumbo loan. These non-conforming loans usually come with slightly higher interest rates and possibly different qualifying standards.

 

Conventional

This is the most common mortgage option for consumers and backed by Fannie Mae and Freddie Mac.

Pros:

Down payment of 20% is standard, but 10% or less is possible with some conventional loans.

All occupancy types – allowed for investment property on 1-4 units.

Good for purchase, refinance or renovation loans.

10 to 30-year fixed loans, as well as 5,7 & 10-year ARMS

Cons:

Strict qualifiers

Need good credit

Best for: High-credit, low LTV consumers looking for the best rate

 

VA (Veterans Affairs) loans

Offers U.S. military veterans and their families affordable mortgage loans with no down payment and no PMI (Private Mortgage Insurance).

Pros:

Zero down payment

Low interest rates and payments

No mortgage insurance

Good for purchase, refinance loans

Fully assumable

15 & 30-year fixed rate loans, 5-year ARMs

Good for 1-4 units

Cons: Only Veterans are eligible.

Best for: U.S. military personnel

 

FHA (Federal Housing Administration) loans

Great for first-time homebuyers, buyers with smaller down payments, and those with lower credit scores.

Pros:

Down payment: 3.5% minimum (96.5% Loan-to-Value)

Low payments

Purchase, refinance, and renovation loans.

Options for consumers with low credit score

1-4 units

5-year adjustable or 15 & 30-year fixed rate options

Cons: With low down payment, must pay PMI (Private Mortgage Insurance)

Best for: First-time homebuyers

 

USDA (United States Department of Agriculture)

Mortgage loans first developed to promote the purchase of rural land.

Pros:

Zero down payment

Low payments

Purchases or refinances

Up to 102.5% Loan-to-Value

Cons:

Need at least good credit

Limited to certain rural and agricultural zones

Only 30-year fixed loans available

Only good for 1-unit properties

Best for: Investors buying rural or agricultural property

 

Other loan products:

Negative-amortization loans, construction loans, interest-only loans, loans with LTVs above 100%, and other hybrid loan products were prevalent in the past, but are mostly not offered today.

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In my experience, there is no perfect loan. But there is a best loan for every borrower based on their circumstances and specific needs. Let’s talk so we can figure out which loan is best for you!

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