Standard Loan Products

Standard Loan Products

Today's market has great options to finance your home and help achieve financial stability and freedom. 

30 Year Fixed Loan:   This is the golden standard in "standard" loan products.  The interest rate is "fixed" or the same for the entire 30 year term of the loan and therefore your principal and interest portion of the payment will not change for 30 years.  But, your payment will most likely go up over time to accommodate higher taxes and insurance rates.

Other Fixed Loans:   The most common terms offered are 15 and 20 years.  These usually offer lower interest rates than 30 year fixed loans, but the payment is higher.  A great option if you need to force savings or you would like to eliminate mortgage debt quicker than 30 years.  Many borrowers look for these shorter terms when retirement is coming into view.  I do not recommend 40 year term loans, but they are available.

ARM:   Adjustable Rate Mortgages, or ARM's are mortgages where the interest rate will adjust during the term of the loan.  The obvious risk associated with an ARM is that your payment will change over time and could go up.  The adjustments can be at different increments - daily, monthly, every 6 months, or annually.  I do not normally recommend ARM's, but they do have the advantage of adjusting down when rates are dropping.

Hybrid ARM's:           These products have a fixed period before they start adjusting on a regular basis.  Most common are 3/1, 5/1, and 7/1 and are pronounced "Three One ARM" and so forth.  The first number indicates the amount of years that the interest rate is fixed and the second number indicates how often the rate will adjust after the fixed period.  A 3/1 ARM will have a fixed rate for three years and then the rate will adjust every "one" year after it for the remaining 27 years.

The advantage of Hybrid ARM's are that they typically offer a lower rate than a 30 year mortgage and if you can anticipate that you will be in the house for the fixed term, it might be the right loan for you because you will save money on interest.  The risk is that the rate will adjust in the future and it could go higher or lower.

Conventional:   This term refers to any loan that runs through Fannie Mae or Freddie Mac.  Typically requires at least 5% down payment and good to great credit scores.

FHA:   These loans are insured by the Federal Housing Authority.  Require a 3.5% down payment and are often used by first time home buyers or people with less than great credit.

FHA 203k:   FHA Rehabilitation loan that is just like a regular FHA requiring 3.5% down payment, but extra money is lent to make required and elective repairs.

VA:   Only for active military and veterans.  It is guaranteed by the Veterans Administration and does not require a down payment - 100% financing.

Jumbo:   Any loan larger than $417,000.  These do not go through any of the government organizations and typically have higher interest rates than conventional or government loans.

 


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