|
HOW WILL I
PAY FOR MY NEW HOME - FINANCING OPTIONS FOR BUYERS
What lender you choose to work
with and what financing options you select will affect
both how much you pay at closing and how much you pay each
month for the life of your loan. Kathe can work with you
and your lender to help you select the product that makes
the most sense for you.
Fixed or variable interest
rate loans:
-
Fixed
rate loans – the principal and interest payments are the
same each month over the life of the loan
-
Variable rate loans (ARMs)– the principal and interest
payments change periodically – interest rates are tied
to one or more indexes or margins. Some variable rate
products start off with a short fixed period (such as a
“5and1 ARM”). While there are generally ceilings on how
high the interest rate on an ARM can go, the rates
generally start out lower than a fixed rate mortgage
because of the uncertainty involved. ARMs may end up
being cheaper if interest rates decline or if you do not
plan to own your home for a long time. Choosing an ARM
product may also help you qualify for a higher loan
because the payments are initially lower – just be sure
you feel that you can handle the increased payment
amounts when the loan adjusts.
Loan term:
Most loans are for either 15
or 30 years. Some loans are “balloon” loans, with a
shorter term and a large final payment.
Loan Products:
There is a wide array of
loan products available, designed to accommodate the needs
of just about any potential buyer. Below is a brief
listing of some of these products.
-
First Time Home Buyer Programs
-
Thirty and Fifteen Year Fixed Rate Loans
- 3,
5, 7 or 10 Year ARM Instruments
-
Advanced Equity Loans (so you can buy before you sell)
- No
points, fees or closing cost Loans
- New
Construction Loans
-
FHA/VA Financing
-
Rehab Loans
-
Jumbo Loans (those that exceed the conforming limit of
$333,700)
-
Pledged Asset Mortgages (where you can pledge assets
without selling them to meet downpayment requirements)
- Home
Equity Loans/ Lines of Credit
-
B-Weekly Mortgage Plans (by making what amounts to one
extra mortgage payment per year you can pay off a
30-year mortgage about 10 years earlier)
- PHFA
Loans (PA state low income home ownership and closing
cost assistance programs (in Allegheny County, the 2003
limits were a purchase price of $189,000 and a household
income of $65,000)
Annual Percentage Rate
(APR):
This takes into account the face interest rate of the
loan, as well as all points and fees that you pay in
connection with the loan. The more “points” you pay to a
lender, the lower your face interest rate will be. You
should compare the APRs among the loans you are
considering, along with the amount of time you think you
will own the home, to choose the right product for you.
Escrows: If
your primary mortgage is for more than 80% of the purchase
price, the lender will escrow (or collect from you each
month) the insurance and taxes and pay these for you. If
you wish to self-escrow, be sure to tell the lender that
up-front – some lenders charge you for the privilege of
paying your own taxes!
Mortgage Insurance:
If
your primary mortgage is for more than 80% of the purchase
price, you will be required to pay mortgage insurance,
which is usually charged both as a lump-sum initial
payment and ongoing monthly payments. Once you have 20%
equity in your home, you can request that your lender
remove this monthly fee. You can also discuss with your
lender whether a two-loan program would allow you to avoid
these fees altogether.
Conforming Loans: Conforming
loans are first mortgages on property (as opposed to Home
Equity Loans or second mortgages) which are less that
$333,700. If you need to borrow more than $333,700 to
purchase your new home, this would entail a “Jumbo” loan
product. Rates on jumbo loan products are always more
than rates on conforming loan products. Consult with your
mortgage broker as to whether using two loans, a
conforming first loan and a second mortgage, would be
financially more advisable for you than using a jumbo
loan.
|
