Your Home Loan

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• Types of Loans Available
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• Document Requirements

Types of Loans Available

There are three things you must know when you are pursuing a home loan:

1. You need to have a clear understanding of your budget when buying a home.
1. You want to make sure that your mortgage payments and property taxes are around 30% to 35% of your household income. Lenders will have a reluctance to loan you money if it is higher than this.
2. You want to make sure you have the cash for the improvements you see the home needs (you should get bids from contractors before you determine you want to buy the home and add 30% to the bid to be safe). You do not want to run out of cash between your down payment and the home improvements.
3. You want to make sure you understand ALL the maintenance costs of the house as well as all the utility costs, along with mortgage insurance and property insurance so you understand what the house will require from your salary each month.
2. You need to understand the difference between the two most common mortgages, the adjustable mortgage and the fixed-rate mortgage.
3. You need to understand why it is so important to get the right loan professional that will help you through the loan process and have your comfort, your interests and your money as their primary focus.

The loan process is complicated. There are so many options, so many issues, so much to deal with, it is impossible to navigate this course without a professional guiding you. Between an excellent real estate agent and an excellent loan broker you will be able to make the right decisions to meet your unique needs.

A home loan is not something that is stamped out like a cookie. Doing the job right, the home loan is shaped to fit your credit score, your income, your home cost, your down payment, your strategy for buying this property, and your comfort level for carrying the obligation of a mortgage. The goal, SAVE YOU MONEY WHEREVER POSSIBLE and get you the loan you need to buy the house and protect your financial interests. You want to make sure this is what everyone involved in your borrowing process is focused on. They will make money regardless of the rate you have to pay or the terms of the loan, but many lenders want to maximize the income for the lending institution and others want to maximize the income for themselves. Choose your loan source carefully.

Fixed Rate Mortgage

A fixed rate mortgage, like the name implies, maintains the same interest rate throughout the entire life of the loan. You can get this fixed rate mortgage usually in 10, 15, or 30 year terms. The time can be negotiable with your specific lender to fit your needs. This type of mortgage is good for the home buyer who wishes to know how much the house payment will be every month because it is fixed and if the home buyer is planning on living in the home for 10 years or more.

One Year Adjustable Rate Mortgage

Adjustable rate mortgages, or ARMS, have interest rates that change according to financial indexes often dictated by the current market. This means that your payment can increase or decrease according to the change in the index. This can sometimes offer instable payments so the home owner must be prepared for changes of either an increase or decrease in amount.

With the one year ARM, the interest rate changes every year according to the index for the entire life of the loan. This can be good for the home buyer who wants to risk getting the lowest rate possible at the expense of risking a higher rate and higher monthly payments if the index changes accordingly.

The rates are usually offered on the lower end due to the risk that the buyer is carrying. If you enter into this type of fluctuating loan because the interest rates are lower and the payments are lower, you can re-negotiate the terms or refinance later and possibly improve your loan costs and get a more stable loan. Of course to do so, your salary must be consistent or higher year after year, your home value must sustain itself or go up and your credit rating must maintain itself or go higher. We do not recommend ARMs for our clients because we think you should be protected as much as possible. There are risks in ARMs that we believe you should avoid.

10/1 Year ARM

With this mortgage, the interest rate remains the same for 10 years and then starting the 11th year changes every year according to the index the lender chooses to base the interest on. This mortgage is good for those who know they will move prior to the ARM being altered to the new interest level. This method can provide a lower interest rate and lower payment for the 10 year term. As you get older and your living costs rise, you will not want to have a higher mortgage. We only recommend this loan if you are sure you will not be in the home 10 years from the time of buying. a stable payment plan while they are living in the home.

Balloon Mortgage

Balloon mortgages are a high risk because at the end of the life of the loan, there will be a large payment as the loan is due in full. The life of the loan is negotiable; however 3, 5, and 7 year balloons are common. The home owner will pay at a stable interest rate for the life of the loan, then at the end of the term, all the remainder of the loan must be paid in full. The home owner must be prepared for this final, very large payment.

This mortgage is good for those who want to live in the property more than the life of the loan, who have unusual income opportunities or unique capital assets who want to pay the mortgage off quickly, who like stable monthly payments, or who plan to move before the life of the loan, in which the loan can be assumable and passed to another buyer.

7/1 Year ARM

Like the 10/1 ARM, this mortgage simply has a different life term. The interest rate remains steady for 7 years and then starting the 8th year the interest rate will change according to the index, causing the monthly payment to change every year after. This mortgage is good for the home owner who plans to live in the home for 7 years and likes stable payments. It is also good for the home owner who wants to move within 7 years and has options in case he or she chooses otherwise.

30 Due in 7 Mortgage

This mortgage is like two fixed rate mortgages put together and has a lot of risk. We never recommend this loan. It is also known as a 7/23 two-step mortgage. The interest rate and monthly payment remains stable for 7 years and then on the 8th year, the interest rate changes according to the current rates. This interest rate and payment will remain the same for the life of the loan. This mortgage is good for those who plan to live in the home for more than 10 years and wants to risk the interest rate going either higher or lower at the 8 year mark.

30 Due in 5

Similar to the 30 due in 7, this mortgage is a two-step mortgage that has an interest rate and monthly payment that remains stable for 5 years and then changes according to the current market rates on the 6th year. There is unforeseen risk in this type of mortgage. We never recommend this This mortgage is good for those who wish to live in the home for longer than 5 years and want to risk having a change in a monthly payment, whether an increase or decrease.

5/5 and 3/3 ARMs

These mortgages have a stable payment for the first listed number, 3, 5, or however negotiated, and then after that period the interest rate changes according to the market every 5 years for the 5/5 ARM and 3 years for the 3/3 ARM. This mortgage has fewer adjustments for the life of the loan and is good for those who wish to live in the home for a period of 3-5 years and who are open to changes in the future. Right now interest rates are low but rising. We do not believe this type of loan is good at this time.

5/1 and 3/1 ARMs

This mortgage is not stable and the interest rate changes every year after the first listed number. So starting the 6th year for the 5/1 ARM and starting the 4th year for the 3/1 ARM.

We believe you should seek stability and security and not buy a bigger or more expensive home because you can find a way with risk to achieve a lower payment unless you have a unique income status or unique personal balance sheet.

4th year for the 3/1 ARM.

We believe you should seek stability and security and not buy a bigger or more expensive home because you can find a way with risk to achieve a lower payment unless you have a unique income status or unique personal balance sheet.