The number of mortgage programs and options has diminished dramatically during the last three years. While the type of loan that's right for you still depends on how much you can afford and what your future plans are, your Northstar Mortgage Loan Officer is ready to guide you through the entire evaluation and selection process.
Fixed Rate Loans
A fixed-rate loan offers the same interest rate, monthly principal and interest payment throughout the entire life of the loan. You can choose a variety of repayment terms, with 15 and 30 years being the most common. The fixed-rate mortgage loan is the "traditional" choice and is still the most popular because it offers stability and predictable monthly payments.
The longer the term, the lower the monthly payments and the more cash you'll have for other expenses. A longer term also provides maximum tax-deductible interest (ask your tax advisor for more details). With a shorter term, you'll have higher monthly payments and you'll qualify for a smaller loan amount, but you'll save on interest costs over the life of the loan and build your equity faster.
Choose a fixed-rate loan if you:
•Like the current rate and want to keep it for the life of your loan •Are purchasing or refinancing at a time when interest rates are comparatively low •Plan to stay in your house for a long time •Prefer regular payments with no surprises •Are on a limited or fixed income
Adjustable Rate Loans
Adjustable-rate mortgages (also called ARMs) feature an interest rate that periodically adjusts with changing market rates. ARMs are attractive because they offer start rates that are lower than the interest rates of fixed rate home loans. This typically enables you to begin with lower monthly payments and qualify for a larger loan.
ARMs are available in government, conforming and jumbo loan amounts. A start rate, also known as the initial interest rate, gives you a special low monthly payment for a set amount of time, which is typically 1, 3, 5, 7 or 10 years.
After the start rate period is over, your interest rate is based on the performance of a financial index, such as the average interest rate or yield on treasury bills. For a better understanding and a historical perspective, see ARM financial indices. Before you agree to an ARM, be sure you can afford the highest payments that would result.
Choose an adjustable-rate loan if you:
•Need extra borrowing power •Need a lower initial rate to afford to buy the home you want •Want to save money in the first few years of home ownership •Plan to move or refinance in a few years •Are confident your income will rise enough in the coming years to handle any increase in payments •Are purchasing or refinancing at a time when interest rates are comparatively high
FHA mortgages help low-to-moderate-income home buyers purchase homes with low down payments and flexible qualifying guidelines. These loans are insured by the Federal Housing Administration (FHA), which sets loan limits that vary by area. With an FHA mortgage, you can use a gift or unsecured loan for down payment and closing costs.
FHA mortgages are available in fixed-rate and adjustable-rate options and have no maximum income/earning limitations. Insurance from the federal government replaces private mortgage insurance. Maximum loan amounts vary by county - contact your Northstar Mortgage consultant for details.
Choose a FHA loan if you:
•Need a low down payment or the down payment is a gift •Have limited savings and/or moderate incomes •Are a first-time home buyers concerned about not having enough funds for down payment and closing costs on a new home. This is also a great program is you have less than perfect credit
VA loans are available only to eligible veterans. They offer a significant advantage: no out-of-pocket expenses may be required. Interest rates and points are negotiated and paid up-front.
With a VA loan, you won't have to make a down payment. It provides more flexible qualification guidelines than FHA or conventional loans and there is no monthly insurance requirement. And, your out-of-pocket expenses can come from a gift. It is available in fixed-rate loans only.
Choose a VA loan if you:
•Are a qualified veteran, reservist, active serviceperson or the spouse of one of these (check with your regional VA office to see if you are eligible) •Have limited funds for down payment and closing costs
In 2009 the USDA enacted changes that made millions of borrowers eligible for their rural mortgage programs. Many home buyers dream of purchasing a home but don't necessarily have the cash on hand to make the hefty 20% down payment required by a conventional home loan.
USDA mortgages stand alone as the only zero money down program available to borrowers that have not served in the military. Eligible borrowers will be hard pressed to find a loan program that offers more favorable terms.
If you need to borrow more than $417,000, then a jumbo loan might be right for you.
A jumbo loan is also called a non-conforming loan because it does not conform to the loan limits set by Fannie Mae (The Federal National Mortgage Association or FNMA) or Freddie Mac (The Federal Home Loan Mortgage Corp. or FHMLC). These are the two government-sponsored enterprises that help facilitate the availability of home loans by investing throughout the country. Non-conforming loans typically have a higher interest rate and different down payment requirements. For detailed information, please contact your Northstar Mortgage consultant.
Choose a jumbo loan if you:
•Want to finance larger and/or more expensive properties and can handle larger monthly payments •Are an investment-minded buyer who wants to leverage your assets more effectively
Home Equity/Second Mortgage Loans
Second mortgages, more popularly known as home equity loans, provide a way for homeowners to finance just about anything, from kitchen remodeling to college for your kids. A home equity loan gives you a fixed interest rate on a lump sum for a major expenditure - putting the equity in your home to work for you.
Equity loans are popular because the interest charges are tax-deductible, just as interest is deductible on first mortgages. Interest on other types of consumer debt, including auto loans and credit cards, cannot be used as a tax deduction. Consult your tax advisor to see how this applies to you.