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What will you need to complete your mortgage application
successfully?
At first glance, the array of financing options and home
loans available may seem confusing. But empower yourself with
some basic information and you'll see that what you really
have are many great ways to own your downtown San Diego dream
home.
Which option is best for you? We'd
be happy to talk more about your specific needs.
With a fixed-rate mortgage, the interest rate stays the same
throughout the term of the loan-usually 15 or 30 years-so
the principal interest portion of your payment remains the
same.
Rates tend to be higher for fixed-rate loans than they are
with adjustable-rate loans, but payments are stable. Often,
however, fixed-rate loans cannot be assumed by a subsequent
buyer.
This is a loan that has to be paid off after a certain period.
It offers the advantage of an interest rate that is lower
than a 30-year mortgage.
Because the interest rate is linked to a financial index,
such as a Treasury security or a cost of funds, the monthly
payments on an adjustable-rate mortgage can vary up or down
over the life of the loan-usually 25 to 30 years. Interest
rates can change monthly, annually, or every 3 or 5 years.
Some ARMs have a cap on the interest rate increase, to protect
the borrower.
Here are some other terms relating to adjustable-rate
mortgages:
- Adjustment period: The length of time between interest
rate changes. Example: with a one-year ARM, interest changes
annually.
- Cap: The limit on how much an interest rate or
monthly payment can change at each adjustment or over the
life of the loan.
- Conversion clause: A provision in some loans that
enables you to change an ARM to a fixed-rate loan, usually
after the first adjustment period. This may require additional
fees.
- Index: A measure of interest rate changes used
to determine changes in the loan's interest rate over the
term of the loan.
- Margin: The number of percentage points a lender
adds to the index rate to calculate the ARM's interest rate
at each adjustment.
The VA does not lend money; it guarantees a portion of the
loan so that lenders who originate the loan feel comfortable
with their risk. Qualified veterans can obtain loans up to
$203,000 with no down payment. VA-guaranteed loans can be
combined with second mortgages and are assumable upon qualifying
by any future buyer.
FHA does not lend money or make a loan; rather, it insures
loans. The down payment can be as low as 2.25%. Either buyer
or seller may pay discount points. FHA charges a 2.25% up-front
Mortgage Insurance Premium (or as little as 2% for a first
time home buyer) that can be financed in the mortgage amount
or paid in cash. No premium is required for condominiums.
The borrower must also pay an annual Mortgage Insurance Premium
or .5%, which is collected monthly.
In this case, the seller of the house lends the buyer enough
to make up the difference between the purchase price and the
down payment plus first-mortgage balance (a commercial lender
may also make this kind of loan). The terms, including the
interest rate, are based on buyer/seller agreement. It is
often a short-term (5 to 15 year) loan-sometimes "interest
only" payments-until the term date when the balance is
due in full. A buyer can then refinance the home.
The buyer "takes over" or assumes the mortgage
obligation of the seller (with concurrence of the lender).
The interest rate doesn't change and is sometimes lower than
current rates. Often the loan fees are less as well.
This is a payment plan that can be combined with any traditional
mortgage, although it is most often associated with ARMs.
Interest-only payments are typically made for a set period
of time. At the end of that time, payments are increased to
include both interest and principal amounts. Although there
are risks involved, interest-only loans can be used to leverage
income to build assets or to qualify for more money.
Which option is best for you? We'd
be happy to talk more about your specific needs. |
