THE RIGHT MORTGAGE

Whether you are purchasing property as your residence, investment or even a combination of the two, getting the right mortgage for your purchase is a primary component to your wealth-building strategy. If you are a first-time homebuyer, you should know that there are mortgage programs that can assist you with your first home purchase.  There are many different factors that are considered when planning the structure of a mortgage, such as your current credit score, the amount of downpayment you have; whether the property will be used as a primary residence or a second home, or even a vacation home; or whether the property is a type of short- or a long-term investment.  Don't worry, I will help you through the confusion, and get you the appropriate financing for your particular needs.  To get you started here are just some of the types of mortgage products that I can help you with:

1. CONVENTIONAL FIXED-RATE MORTGAGE

A conventional fixed-rate mortgage is a very basic type of loan. It generally allows the borrower to repay the mortgage with monthly payments of the same amount over a number of years. The repayment term can be anywhere from 10, 15, 20, 25, 30, and even 40 years.  Each payment satisfies both the principal and the interest rate component of the loan. 

2. ADJUSTABLE-RATE MORTGAGE (ARM)

The feature of an adjustable-rate mortgage is that some time in the repayment journey there will be an adjustment in the interest rate which, of course, affects the amount of the payment. For example, one of the most popular adjustable-rate mortgage plans is the 5-1 or 5/1 plan.  With this type of mortgage, the interest rate will remain constant for the first 5 years and then will adjust one time for the remaining term of payments.

3. INTEREST-ONLY MORTGAGE

The interest-only mortgage is basic yet must be used cautiously.  The borrower will pay only the interest on the mortgage for a set amount of years (sometimes only a number of months for investors).  The borrower will then begin paying a higher amount that comprises both the principal and interest for the remaining term of years.

F.R.E.D NOTE: An interest-only mortgage must be used cautiously. For the period the borrower is paying only interest, the mortgage is not being amortized (paid off); therefore, the borrower will effectively lengthen the repayment period.  

An interest-only mortgage can be strategically used for a temporary period (for the acquisition of property and for time to make repairs), then refinance into a fixed-rate mortgage or paid off with a balloon (see below) after the sale of the property (this is usually an investor's strategy).

4. FHA MORTGAGE

An FHA mortgage is insured by the Federal Housing Administration (FHA).  The actual loan is provided by a an FHA-approved lender such as a bank but is guaranteed by the FHA. One of the great features of an FHA mortgage is that the borrower is only required to place a downpayment of 3.5% with a credit score as low as 580; and a downpayment of 10% with a credit score as low as 500.

5. VA LOANS

The VA program is a $0 downpayment mortgage and acts as a guarantor against foreclosure for eligible Veterans, Service Members, and a special category of military spouses.  The VA loans are issued by private mortgage lenders and banks, however, they are guaranteed by the U.S. Department of Veterans Affairs (VA)

6. BALLOON 

 An example of a balloon payment mortgage is the seven-year Fannie Mae Balloon, which features monthly payments based on a thirty-year amortization.  Generally, balloon payments are due at the end of a five-, to seven- or ten-year period.  The expectation is that either the borrower will have sold the property or refinanced the loan by the end of the loan term. 

7. JUMBO 

Jumbo mortgages are largely used for the purchase of luxury properties. A jumbo mortgage is a mortgage loan that may have high credit quality but is generally an amount above conventional conforming loan limits. This standard is set by the two government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, and sets the limit on the maximum value of any individual mortgage they will purchase from a lender. Fannie Mae (FNMA) and Freddie Mac (FHLMC) are large agencies that purchase the bulk of U.S. residential mortgages from banks and other lenders, allowing them to free up liquidity to lend more mortgages.  When FNMA and FHLMC limits don't cover the full loan amount, the loan is referred to as a "jumbo mortgage". Traditionally, the interest rates on jumbo mortgages are higher than for conforming mortgages, however, with GSE fees increasing, Jumbo loans have recently seen lower interest rates than conforming loans. 

This article is written by 

Frederick W. Ford

Insurance, Mortgage and Real Estate Advisor

NMLS 640619

Tel.: (888) 410.8853 

This article is intended for informational purposes only and is not an advertisement nor solicitation.