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Types of Loans

Thirty-Year Fixed Rate Mortgage

The traditional 30-year fixed-rate mortgage has a constant interest rate and monthly payments that never change. This may be a good choice if you plan to stay in your home for seven years or longer. If you plan to move within seven years, then adjustable-rate loans are usually cheaper. As a rule of thumb, it may be harder to qualify for fixed-rate loans than for adjustable rate loans. When interest rates are low, fixed-rate loans are generally not that much more expensive than adjustable-rate mortgages and may be a better deal in the long run, because you can lock in the rate for the life of your loan.

 Twenty-Year Fixed Rate Mortgage

This loan is fully amortized over a 20-year period and features constant monthly payments. It offers all the advantages of the 30-year loan, plus a lower interest rate-and you’ll own your home ten years earlier. The disadvantage is that, with a 20-year loan, you commit to higher monthly payments. Many borrowers opt for a 30-year fixed-rate loan and voluntarily make larger payments that will pay off their loan in 20 years. For specific details and early-payoff customization, please visit our “Mortgage Calculators” link in the left-hand column, and then select the “Early Payoff” calculator. The 30-year fixed-rate approach is often safer than committing to a higher monthly payment; however, the difference in interest rates can provide large long-term savings.

  Fifteen-Year Fixed Rate Mortgage

This loan is fully amortized over a 15-year period and features constant monthly payments. It offers all the advantages of the 30-year loan, plus a lower interest rate-and you’ll own your home twice as fast. The disadvantage is that, with a 15-year loan, you commit to higher monthly payments. Many borrowers opt for a 30-year fixed-rate loan and voluntarily make larger payments that will pay off their loan in 15 years. For specific details and early-payoff customization, please visit our “Mortgage Calculators” link in the left-hand column, and then select the “Early Payoff” calculator. The 30-year fixed-rate approach is often safer than committing to a higher monthly payment; however, the difference in interest rates can provide large long-term savings.

 Ten-Year Fixed Rate Mortgage

This loan is fully amortized over a 15-year period and features constant monthly payments. It offers all the advantages of the 30-year loan, plus a lower interest rate-and you’ll own your home in one-third of the time. The disadvantage is that, with a 10-year loan, you commit to higher monthly payments. Many borrowers opt for a 30-year fixed-rate loan and voluntarily make larger payments that will pay off their loan in 10 years. For specific details and early-payoff customization, please visit our “Mortgage Calculators” link in the left-hand column, and then select the “Early Payoff” calculator. The 30-year fixed-rate approach is often safer than committing to a higher monthly payment; however, the difference in interest rates can provide large long-term savings. 

Hybrid ARM (3/1 ARM, 5/1 ARM, 7/1 ARM)

These increasingly popular ARMS-also called 3/1, 5/1, or 7/1-can offer the best of both worlds: lower interest rates (like ARMs) and a fixed payment for a longer period of time than most adjustable rate loans. For example, a “5/1 loan” has a fixed monthly payment and interest for the first five years and then turns into a traditional adjustable-rate loan, based on then-current rates for the remaining 25 years. Because Starwest Mortgage Corp. does not use prepayment penalties, this loan product is a good choice for people who expect to move (or refinance) before or shortly after the adjustment occurs.

FHA Mortgage

The Federal Housing Administration (FHA), which is a part of HUD, insures this loan so the lender can offer a more competitive deal. This type of loan is popular among first-time homebuyers. However, being a first-time buyer is not a requirement. FHA loans are normally restricted to a primary residence and only one FHA loan per person, unless the borrower or borrowers can prove that their family has outgrown the current residence or if an employment relocation is taking place. Either way, these circumstances are up to the lender and underwriter’s discretion.

Advantages

FHA’s minimum requirement for down payment is 3.5% or $3,500 on a sale price of $100,000. Technically, FHA does not require a minimum credit score; however, lenders have what are called “lender overlays”, which usually require a credit score of at least 640. Other conditions can apply to credit scores down to 500. FHA programs come in a large assortment (e.g., 30-year, 30-Year 2/1 Buydown, 15-Year, 3/1 and 5/1 ARMs).

The advantage of doing an FHA 15-Year loan with 10% down payment or equity is that the consumer will not have to pay monthly mortgage insurance. All Conventional loans require a 20% down payment to eliminate mortgage insurance.

Disadvantages

On a 30-Year fixed loan with 3.5% down payment, FHA requires that you pay a monthly mortgage insurance fee of 1.15%. With a loan amount of $100,000, that is $95.83 per month. Worth mentioning is that the mortgage insurance fee factor will decrease to 1.1% with a 5% plus down payment. Loan amounts are restricted to county loan limits (e.g., Maricopa and Pinal County limits for a single-family residence are currently $346,250).

Per FHA guidelines and in addition to the monthly mortgage insurance, the borrower or borrowers will pay an upfront mortgage insurance fee of 1%. This fee can be financed, but this means that interest on that fee is paid over the term of the loan. For example, if the base loan amount is $100,000, the fee will be $1,000, resulting in a full loan amount of $101,000.

With Conventional loan programs, the borrower or borrowers can appeal to have the mortgage insurance removed once the property’s loan-to-value ratio reaches 80%. With FHA mortgages, the appeal cannot be made until the loan is a minimum of 5 years old.

HomePath Mortgage

This special program allows a potential buyer to purchase a Fannie Mae-owned property with a down payment as low as 3 percent, funded by the borrower’s own savings, a grant, a gift, or a loan from a nonprofit organization. HomePath mortgages are eligible as primary residences, second homes, and investment properties. Possibly the largest incentive for the HomePath program is the mortgage does not require a property appraisal, mortgage insurance premium, or monthly mortgage insurance. Seller contribution limits are expanded for closing costs allowed. Additionally, HomePath offers renovation mortgages. For more information, and to search for Fannie Mae-owned eligible homes, please visit HomePath.com.

VA Mortgage

The VA Home Loan program is backed by the U.S. Department of Veteran Affairs. This program allows veterans, with qualifying income and credit, to purchase a primary residence without putting any down payment funds towards the sale price of the home, as long as that sale price does not exceed the appraised value of the property. There is no maximum VA loan amount; however, lenders will generally limit VA loans to the county’s Conforming loan limit of $417,000. For loans up to this limit amount, it is typically possible for qualified veterans to obtain no down payment financing. A veteran’s maximum entitlement is $36,000 (or up to $104, 250 for certain loans over $144,000). Lenders will usually loan up to 4 times a veteran’s available entitlement without a down payment, provided the veteran’s income and credit qualify, and the property appraises for the sale price. Additionally, VA loans require no mortgage insurance premiums and monthly mortgage insurance fees.

USDA Rural Housing

The Rural Housing loan is guaranteed by the USDA’s Rural Housing Service. This mortgage program is designed for low to moderate income families in rural areas. The USDA’s “guarantee” means that they will compensate any lender for any USDA Rural Housing loan in default. Additionally, this “guarantee” means that lenders are more than willing to lend their money to individuals with less than stellar credit and no down payment requirement. Most lenders will allow credit scores as low as a 620. The “guarantee” also indicates that lenders will not require mortgage insurance for Rural Housing loans. Nonetheless, Rural Housing loans charge a 3.5% upfront funding fee, which can be financed into the loan. In the scenario of financing the funding fee, the final loan amount will equal 103.5% of the property purchase price. This means the consumer begins homeownership with a mortgage larger than the home is worth. The two major limitations of this program are income restrictions and the property must be located in a designated rural area. Please go to the USDA’s website to check income and property location eligibility.

Adjustable Rate Mortgages (ARM)

When it comes to ARMs there's a basic rule to remember...the longer you ask the lender to charge you a specific rate, the more expensive the loan.

 2/1 Buy Down Mortgage

The 2/1 Buy-Down Mortgage allows the borrower to qualify at below market rates so they can borrow more. The initial starting interest rate increases by 1% at the end of the first year and adjusts again by another 1% at the end of the second year. It then remains at a fixed interest rate for the remainder of the loan term. Borrowers often refinance at the end of the second year to obtain the best long-term rates. However, keeping the loan in place even for three full years or more will keep their average interest rate in line with the original market conditions.

 Annual ARM

This loan has a rate that is recalculated once a year.

Monthly ARM

With this loan, the interest rate is recalculated every month. Compared to other options, the rate is usually lower on this ARM because the lender is only committing to a rate for a month at a time, so his vulnerability is significantly reduced.

 

Starwest Mortgage Corp.
1818 E. Southern Ave, Suite 15C, Mesa, AZ  85204
Office:  (480) 962-5665
Office:  (520) 303-9406
Office:  (801) 214-1777
Fax:  (480) 545-0586
info@starwestmortgage.com
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