MORTGAGE OPTIONS

WHICH LOAN IS RIGHT FOR YOU?

It’s important to know all of your loan options.  The table below shows the different loan options and their pros  and cons.  This is a quick guide on your loan option, however, I can answer any specific questions you may have. An informed mind makes the best decision. We’re here to help.

MORTGAGE PROGRAMS

FHA

Loan terms:  15 & 30 year loans
Loan types: Purchase, Refinance
Interest Rate Types:  Fixed, Adjustable
Property Type:  Primary Residence

This is a HUD or government insured loan that allows buyers to purchase a home for only 3.5% down.  The FHA loan has maximum loan limits for each county which are significantly lower than conventional limits (search for your county limits here).  An FHA loan is excellent for someone who has less money to put down, and someone who has higher debt-to-income ratios, or someone whose credit is less than perfect.

  • Only 3.5% down
  • Flexible qualification guidelines
  • Debt-to-income ratio as high as 55%
  • Requires up-front & monthly mortgage insurance (MI)
  • Maximum loan limits vary by county
  • MI required for the entire life of the loan
  • Allows for no cost, no qualifying “streamline” refinance

 

Conventional

Loan terms:  10, 15, 20, & 30 year loans
Loan types:  Fixed, Adjustable
Interest Rate Types:  Purchase, Refinance
Property Type: Primary Residence, Second Home, & Investment Properties

The conventional conforming loan is the traditional mortgage program. It is called “conforming” because it fits within the standardized guidelines set by Fannie Mae and Freddie Mac. It can be used to finance all different types of residential properties. The loan requires mortgage insurance if the down payment is less than 20 percent. The monthly mortgage insurance required for this loan is cheaper than FHA mortgage insurance. A conventional loan caters to those who have more money to put down & great credit scores.

 

  • As low as 3% down on a primary residence purchase
  • Debt-to-income ratio as high as 45%
  • Qualifying guidelines more strict than FHA
  • Requires monthly mortgage insurance (MI) if down payment is less than 20%
  • MI can be cancelled at 80% loan-to-value
  • Loan amount up to $453,100 (anything higher is a jumbo loan)

Rural Housing (RDA or USDA)

Loan terms:  30 Year Loans
Loan types:  Purchase, Refinance
Interest Rate Types:  Fixed
Property Type: Primary Residence

The Rural Housing loan is a federal program offered through the United States Department of Agriculture (USDA). It is designed to help borrowers with low-to-moderate income obtain home financing in specified rural areas. The program has an upfront guarantee fee of 2.0% (which can be financed into the loan) and a low monthly mortgage insurance premium. This is a great loan for those seeking financing in a rural area. Income and property location restrictions apply- see below for more details.

 

  • Available for properties in specified rural areas (click here to see eligibility map)
  • No down payment required
  • Flexible qualification guidelines
  • Financing up to 103.5% of the appraised value
  • Requires up-front guarantee premium & low rate monthly mortgage insurance
  • Maximum income limits vary by county (click here for details)

VA Loan

Loan terms:  10 & 30 Year Loans
Loan types:  Purchase, Refinance
Interest Rate Types:  Fixed, Adjustable
Property Type: Primary Residence

This is a Veterans Administration insured loan available to Veterans of the Armed Forces. It allows for 103% financing so a veteran can buy a home for no money down and finance the closing costs. The VA charges an up-front funding fee (which can be financed into the loan) that varies based on whether or not it is the borrower’s first time getting a VA mortgage. This program is a perfect option for a Veteran seeking the most affordable type of home financing.

 

  • Available to eligible veterans only
  • No down payment required
  • VA up-front funding fee, but no monthly MI
  • Allows for no cost, no qualifying “streamline” refinance
  • Subject to VA eligibility rules

Utah Housing

Loan terms:  30 Year Loans
Loan types:  Purchase
Interest Rate Types:  Fixed
Property Type: Primary Residence

This is a government insured and state sponsored loan for first time home buyers. It allows buyers to obtain financing through a first and second mortgage that equal 100 percent of the purchase price. This eliminates the need for the borrower to contribute a down payment. Closing costs can be financed into the loan. The Utah housing loan is a great option for first time home buyers that have very limited funds for a down payment.

 

  • This loan is not limited to first-time home buyers
  • No down payment required
  • Down payment and closing costs can be financed into the loan
  • Requires up-front MI premium & monthly mortgage insurance
  • Annual income limits range from $75,500 – $105,500 (limits vary by county)
  • Maximum purchase price varies by county
  • Property must always be owner occupied, cannot be rented

Fixed Rate Mortgages

  • 30 Year fixed
  • 20 Year fixed
  • 15 Year fixed
  • 10 Year fixed

Pros

  • Monthly payments are fixed over the life of the loan
  • Interest rate does not change
  • protected if rates go up can refinance if rates go down

Cons

  • Higher interest rate
  • Higher mortgage payments
  • Rate does not drop if interest rates improve

Mortgage Options based on the number of years you plan to stay in your home

  • 1-3 years:& 3/1 ARM, 1 year ARM or 6 month ARM
  • 3-5 years: 5/1 ARM
  • 5-7 years: 7/1 ARM
  • 7-10 years: 10/1 ARM, 30 year fixed or 15 year fixed
  • 10+: 30 year fixed or 15 year fixed

Adjustable Rate Mortgages

  • 10/1 ARM
  • 7/1 ARM
  • 3/1 ARM
  • 1 year ARM
  • 6 month ARM
  • 1 month  ARM

Pros

  • Lower initial monthly payment
  • Lower payment over a shorter period time
  • Rates and payments may go down if rates improve
  • May qualify for higher loan amounts

Cons

  • More risk
  • Payments may change over time
  • Potential for high payments if rates go up

Balloon Mortgages

  • 7 year
  • 5 year

Pros

  • Lower initial monthly payment
  • Lower payment over a shorter period of time
  • Many balloon mortgages offer the option to convert a new loan after the initial term

Cons

  • Risk of rates being higher at the end of the initial fixed period
  • Risk of foreclosure if you cannot make balloon payment or if you cannot refinance or if you cannot exercise the conversion option

First Time Buyers

Pros

  • Lower Down payment
  • Easier to qualify
  • Sometimes you may get lower rates

Cons

  • May be subject to income and property value limitations
  • Some programs which have government subsidies may have a recapture tax if you sell the house too early

Stated Income Programs

Pros

  • Don’t need to verify income
  • Faster approval

Cons

  • Higher rates
  • Higher payments

No Point, No Fee Programs

Pros

  • No closing costs
  • Less money required to close

Cons

  • Higher rates
  • Higher payments

Imperfect Credit Programs

Pros

  • Potential for reestablishing credit if you pay your mortgage on time
  • When used for debt consolidation, you may be able to reduce your monthly debt payment

Cons

  • Higher rates
  • Terms may not be as favorable
  • Harder to get long term fixed loans
  • Loans may have prepayment penalties