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Alhambra Real Estate
Fixed-Rate Conventional
- A conventional loan is a loan made to a buyer by a commercial lender without a third-party participant, such as government agencies like Veterans Affairs(VA) or the Federal Housing Administration (FHA). Fixed-rate conventional loans are typically paid off in equal monthly payments spread over 15,20, or 30 years. The interest rate stays the same for the life of the loan; therefore, the monthly principal and interest payment reamins constant. Shorter terms mean somewhat higher monthly payments. Shorter terms also mean more rapid equity growth in your property, mortgage pay-off and dramatic savings on total interest payments.
- Terms on conventional loans vary among lenders, but many can be obtained with as little as a 5% to 10% down payment. When the down payment is less than 20%, it is necessary to obtain private mortgage insurance(PMI) to protect the lender from a buyer's default.
- Advantage:Quick processing and stable payment.
Adjustable-Rate Mortgage(ARM)
- The interest rate may go up or down over the years and is tied to a financial market index (such as one-year Treasury Bills). Monthly payments may also be adjusted on a periodic schedule. Most ARMs set a maximum adjustment (or "cap") on possible increases to interest rate, monthly payments, and/or set a maximum cap on rates for the life of the loan.
- Advantage: The lower initial interest rate and monthly payment allow the buyer to pay less in the early years for a larger loan and help buyers qualify for a more expensive house than a fixed-rate loan. Caps offer peace-of-mind rate ceiling.
FHA Loan
- Strictly speaking, the FHA(Federal Housing Administration) does not make loans; rather it insures loans, which increases lenders' willingness to provide low down payment loan programs.
- With a FHA-insured loan, a homebuyer can make a small down payment, a feature particularly attractive to first-time buyers. The down payment can be as low as 3%, depending on the size of the loan. Second mortgages are permitted within specific guidelines.
- FHA charges an advance mortgage insurance premium (PMI) fee, as well as a monthly charge for all loans. Ask a loan officer how much the fee would be in your situation and if you can borrow some of the fee and add it to the loan rather than measurably increase your closing costs.
- Advantage:Low down payment; low interest rate; long terms; many are fully assumable loans; no prepayment penalty; second mortgage permitted under certain circumstances.
VA Loan
- Qualified veterans can take out loans up to a specific limit with no down payment. These limits occasionally change; check with a loan officer for current rules. VA-guaranteed loans can be combined with second mortgage and are fully assumable by any qualified buyer. Rates and points may be negotiated with the lender.
- VA/FHA qualification guidelines are more flexible than those for conventional loans. Actual income qualifications are dependent on the type of loan requested.
- Advantage:Usually no down payment; no prepayment penalty; assumption may make your home very attractive to buyers when you decide to sell.
For further assistance with any other real estate needs, please feel free to give me a call at 800-221-9998x122or email me.
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