Educate Yourself on Conventional Mortgages
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Types of Mortgages – Conventional
Know Your Fixed & Adjustable Rate Mortgages
Fixed Rate Mortgages A fixed rate mortgage is a mortgage in which the interest rate and term remains the same throughout the life of the loan. About 75% of all home loans applicants or refinancers seek fixed rate mortgages annually. Fixed rate mortgages are usually in 10, 15, or 30 year terms.
Advantages of Fixed Rate Mortgages
- 1) The homeowner knows the interest rate and monthly payment of their mortgage.
- 2) The homeowner knows when their loan will be paid in full since the term (time span) of their mortgage is fixed.
- 3) It is easier to manage your money when you have a fixed rate mortgage.
- 4) If a home applicant get a fixed or ARM rate mortgage when rates are high, they can refinance the mortgage when rates becomes low although some closing costs would have to be included.
- 5) However, most of the closing costs can be included in the loan and may be tax deductible.
- 6) The interest rate of a fixed rate mortgage usually starts a little higher than those of an adjustable rate mortgage (which may increase at a later date)
Adjustable Rate Mortgages A mortgage loan in which the interest rate changes after a fixed period of time from loan initiation is called an adjustable rate mortgage or ARM. ARM are consider riskier mortgages because a rate change may negatively impact the homeowner that walks away due to inability to handle the new payment. Advantages of Adjustable Rate Mortgages
- 1) The beginning rate of an ARM mortgage is usually lower than those associated with fixed rate mortgages.
- 2) It is easier to afford when interest rates are high.
- 3) It is a very good loan for people (e.g. doctors, lawyers, etc.) expecting improvement in their income
Know Your Balloon & Jumbo Mortgages
Balloon Mortgages Balloon mortgages last for a much shorter term than most mortgages and work a lot like a fixed-rate mortgage. The monthly payments are lower than those of fixed-rate mortgages because a large balloon (total) payment is required at the end of the loan. Balloon mortgage payments are lower, because it is the interest that is being paid monthly, and none of the principal. Balloon mortgages are great when the borrowers have the intention to sell or refinance the house before the due date of the balloon payment. However, homeowners can land in major trouble if they cannot afford the balloon payment, especially if they are required to refinance the balloon mortgage through their original lender. Jumbo Mortgages
A Jumbo Mortgage is a mortgage loan amount greater than $417,000 that does not conform to the Fannie Mae and Freddie Mac guidelines. A TFC Tricont Mortgage Client Advisor can help you obtain a government financed jumbo mortgage of greater than $2 million dollars. You may also be able to finance an FHA jumbo mortgage with as little as 3.5% down payment.
Jumbo Mortgages Characteristics at TFC Tricont Mortgage
What it can do for you
- 1) You may be able to finance a jumbo mortgage larger than $2 million dollars
- 2) Can obtain a Fixed or an Adjustable Rate mortgages
- 3) No longer have to wait forever to close
- 4) May be able to qualify for a 3.5% FHA jumbo mortgage
Special program for teachers, educational institution employees, police officers, firefighters, health care professionals, etc
Offers eligible borrowers higher ratios and gifted reserves
Know Your Lots and Construction Mortgages
Tricont Lot Loans Programs
A lot loan is money that is temporarily given from a lending company or bank to a borrower who is looking to build a primary or
secondary residence. The money from a lot loan is used to finance the purchase of the land that the borrower will build on.
A lot loan is different from a construction loan because the lot loan pays for the land that the construction will take place on.
A construction loan is money that finances the actual construction of the home including manpower (labor) and materials. Some lenders are willing to transfer lot loans into construction loans when the borrower is ready to build. The progression from a lot loan to a construction loan can extend into a home mortgage if the borrower wishes to finance the home once the construction is complete.
Lot loans are designed as purchase money loans for borrowers not yet ready to begin construction at the time of purchase, and as such are not ready to obtain a construction loan, but will be ready in the near future.
The lot must be normal for the area and at least one utility must be available from the street. (Septic tanks, propane tanks) are acceptable if these features are normal for the neighborhood.
Lot loans can be funded as a full or alternate documentation or even as a stated income loan.
The terms of a lot loan vary depending on the lenders. Lot loans are available with fixed or adjustable interest rates. Although the term is usually short, the specific term of the loan will depend on the lenders. Monthly payments for lot loans can include interest only or interest and principal. Usually lot loans are paid in one lump sum to the borrower.
Lenders will stipulate the monetary limits of a lot loan, requirements for acreage, and also what qualifies as an acceptable lot, where as land loans can be used for undeveloped pieces of property, lot loans usually need to be in an area that is considered a petential residential
Tricont Construction Loans
A construction loan is a short term, interim loan for financing the cost of construction of a new dwelling or used for major renovation of an existing property. In a construction loan, the lender makes payments to the builder at periodic intervals as the work progresses. Construction loans are usually short term loans designed to be taken out by permanent financing
A construction loan is money that finances the actual construction of the home including manpower (labor) and materials. Some
lenders are willing to transfer lot loans into construction loans when the borrower is ready to build. The progression from a lot loan to a construction loan can extend into a home mortgage if the borrower wishes to finance the home once the construction is complete
A variety of 15 and 30 year program are offered with 1, 3, 5, 7, 10, 15, 20, 25, 30 year fixed rate periods at Tricont lowest rates
Know Your Investment and Commercial Mortgages
Investment loans are loans that cover properties that do not qualify for primary residence or second home financing. These properties are often rented long (lease) or short (vacation rental) terms. Some properties are classified as investment properties simply because of their distances from the owner’s primary residences unless such residence is near a resort or vacation community
Residential properties that must carry an investment loans are:
- 1) A property rented on long term basis, e.g. apartment.
- 2) A property rented on short term basis, e.g. vacation home
- 3) A home bought near the primary residence of the owner in a non resort or investment communities
Commercial loans are defined as loans made by banks, credit unions, savings and loan associations, insurance companies, schools and other financial or credit institutions which are subject to examination and supervision in their capacity as lenders by an agency of the United States.
Commercial loans are bank loans that are granted to different types of business entities. In some cases, the commercial loan is extended to assist a company with short term funding for basic operational functions, such as meeting payroll or purchasing supplies that are used in the production of the goods manufactured and sold by the company. At other times, the commercial loan may be utilized to purchase new machinery that is directly connected to the operation of the business
The commercial loan is often thought of as a short-term source of cash (funds) for a business. Some bankers offer a commercial loan format that is known as a renewable loan. Renewable loans allow the business to secure necessary funds, repay the balance within terms, and then roll the loan into a second or renewed period. This type of commercial loan is often employed when a company needs funds to secure resources to handle large seasonal orders from customers while still providing goods to other clients
Know Your Graduated Payment Mortgage Loans
Graduated Payment Mortgage Loan
A graduated payment mortgage loan, often referred to as GPM, is a mortgage with low initial monthly payments which gradually increase over a specified time frame. These plans are mostly geared towards young men and women who cannot afford large payments at the beginning, but can realistically expect to do better financially in the future.
For example, a medical or law student who has just graduated from medical or law school might not have the financial qualification to pay for a mortgage loan now, but as he/she progresses in his or her field, it is very likely that he/she will be earning a higher income in the future. This is a negative amortization loan type.
Graduated Payment Mortgage are available in:
1) 15 and 30 year amortization, and
2) Conforming and jumbo mortgages.
Over a period of time, usually 5 to 15 years, the monthly payments increase every year by a predetermined percentage. For example, a borrower takes out a 30-year graduated payment mortgage with monthly payments that increase by 2% every year for five years. At the end of five years, (graduated period) the increases stop and the borrower would then pay the final increased amount monthly for the 25-year remaining on the loan term.
Risk to the Borrower
The graduated payment mortgage may seem to be an attractive option for first-time home buyers or those who currently do not have the resources to afford high monthly home mortgage payments since the monthly payments amounts are drawn out to make the payment lower at the beginning. Also, GPM requires borrowers to predict their future earnings potential and how much they are able to pay in the future which is tricky because the borrowers could overestimate their future earning potential and not be able to keep up with the increase in monthly payments as the loan graduate.
Finally, although a graduated payment mortgage allows borrowers to save at the beginning by paying low monthly amounts; the overall expense of the mortgage loan is higher than those of conventional mortgages, especially when negative amortization is involved.
Know Your Interest Only Mortgages
Interest Only Mortgages
A mortgage is called “Interest Only” when its monthly payment does not include the repayment of principal for a certain period
of time. Interest Only loans are offered on fixed rate or adjustable rate mortgages as wells as on option ARMs. At the end of the
interest only period, the loan becomes fully amortized, thus resulting in greatly increased monthly payments. The new payment
will be larger than it would have been if it had been fully amortizing from the beginning. The longer the interest only period, the larger the new payment will be when the interest only period ends.
You won’t build equity during the interest-only term, but it could help you close on the home you want instead of settling for the home you can afford.
Since you’ll be qualified based on the interest-only payment and will likely refinance before the interest-only term expires anyway, it could be a way to effectively lease your dream home now and invest the principal portion of your payment elsewhere while realizing the tax advantages and appreciation that accompany homeownership.
For example, if you borrow $250,000 at 6 percent, using a 30-year fixed-rate mortgage, your monthly payment would be $1,499. On the other hand, if you borrowed $250,000 at 6 percent, using a 30-year mortgage with a 5-year interest only payment plan, your monthly payment initially would be $1,250. This saves you $249 per month or $2,987 a year. However, when you reach year six, your monthly payments will jump to $1,611, or $361 more per month. Hopefully, your income would have jumped accordingly to support the higher payments or you have refinanced your loan by that time.
Mortgages with interest only payment options may save you money in the short-run, but they actually cost more over the 30-year term of the loan. However, most borrowers repay their mortgages well before the end of the full 30-year loan term.
Borrowers with sporadic incomes can benefit from interest-only mortgages. This is particularly the case if the mortgage is one that permits the borrower to pay more than interest-only. In this case, the borrower can pay interest-only during lean times and use bonuses or income spurts to pay down the principal.