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April Is National Fair Housing Month
Mortgage types you mostly will encounter are conventional, FHA, and VA loans – these "traditional" loans are less likely to cause you headaches.
You also may find ARM (Adjustable Rate Mortgage) and hard money loans – with the caveat: watch for trouble down the road.
There are many other home loan types – I will try to give you only a short list of the most commonly ones and the most likely to encounter.
These are the ones that will have practical consequences on millions of common folks looking to secure a nice place to call home
“Sophisticate buyers” probably will not be reading the pages on this site ;-)
However, as an individual home buyer, I would caution that you should stick with these “plain vanilla” mortgage types:
Types You Should Look For
you can put down 20% or more of the purchase price it is called “conventional
These loans customarily offer better rates and terms because the lender will feel more confident when you put up some money up front to built up your equity on the home.
They are government backed via the Federal Housing Authority (FHA) and they offer you the opportunity to buy a home with the least amount of down payment possible, as low as 3.5% down payment.
Lenders and institutional investors like the FHA insurance of these loans which
makes it available in all corners of the US – I bet you that the bank where you
have your checking account will also offer these loans: Just ask them!
Wildly popular especially among first time buyer it now comprises almost 1/3 mortgages loans been issued.
They do require mortgage insurance (MI) what makes it a bit expensive to acquire – however because interest in historical low levels they are still a wonderful way to set your foot into ownership.
Administration (VA) backed loans – veterans of the US Armed Forces can
receive mortgage loans backed by the VA with zero down payment. A small token
of appreciation to those who have served this country.
It is the only loan program available right now that will finance 100% of the purchase price.
They are available through virtually 100% of mortgage lenders across the nation.
Features That You Should Insist On
Your mortgage loan contract will have many clauses - language may vary a bit according with the lender you are using. Some of the clauses will be common to all to all lenders but expect to encounter some variations.
Here are two clauses that you need to be aware of and by all means make sure that it is NOT include on your loan contract or - at the very least - make sure that it can have dramatic negative impact on your finances future.
Fix Rate Mortgage – it will keep your rates fixed for the duration
of the loan: customarily it is 30 years. However it can be in less time than
that and you also (most likely) can pay early if you so chose and can afford to
do so. (Please see my entry "No prepayment penalty" below)
We are all currently experiencing the second longest economic downturn that this country has ever experience - and it is still unfolding, so no body really can tell when things will "back to what they once where."
Many good folks bought their homes with an adjustable mortgage rate (ARM) which can go up or down - but mostly it goes up...
And when the time came to adjust the mortgage it did go up, in many cases, significantly higher - it was exactly when the the borrowers were more vulnerable ...many of them had lost their jobs or many two income couples which of of the spouse had lost his/her job.
If I could I would like to ask you to think very hard about your finances for the next 5 to 10 years before signing up for an ARM loan.
FYI - There is no reason these features cannot be part of your mortgage loan contract on any of the above described - and recommended - mortgage types.
No prepayment penalty - By all means insist on it!
Most of reputable lender will always accept to be paid off ahead of time without assessing any fees to the borrower.
During the life of the loan your financial circumstances may improve and/or interest rates can come down and conditions may be ripe for you to save some money then you definitely want to refinance (“refi”).
The last thing that you want is to have a penalty to pay off your existing loan.
Mortgage Loans You Should Avoid
Conversely, please avoid these mortgage types as much as possible:
(ARM): These kinds of mortgages tend to bring
disappointment and many headaches to home owners.
Most people think – when they get into to it that in three or five years they will in better financial shape and they can convert to a more traditional type of loan but realty is that many cannot and then a higher interest rate kicks in, your monthly payment will go up and trouble can come down swinging
Recently it was reported in some media outlets that Mr. Zuckerberg, already legendary Facebook co-founder and CEO got an ARM for his recently acquired home.
It also was reported that his
initial interest was 1.05% (you are reading correctly) it is below the current
Nice if you can get that kind of interest and better yet even you have the dough to move to a "safer" mortgage when interest do move up.
This is one of the mortgage types that are just about extinct in the current home buying market– it is usually offered as a short term solution until a more “traditional” mortgage loan is attained.
Rates are ways more expensive and they have a “balloon note” that you have to come up with the total payment or a huge lump sum in a shorter period of time – typically 1 to 3 years. Sometimes up to 5 years but those are rare in this kind of mortgage loans.
These two mortgage types are more likely to have a prepayment penalty – hard money mortgages more so ...And can guarantee that it would not qualify for "homeownership programs" available across the nation
JC Fagundes, Head Broker
EQUAL SERVICE TO ALL.
Residential. Commercial. Investments.
Ph: 404 801 4141