A mortgage is a legal agreement between a lender and a homeowner. When a homebuyer does not have enough cash to purchase a home outright, they borrow money from a bank by using their house as collateral.
With the many different types of mortgages, home buyers must understand the advantages and disadvantages of each before deciding which mortgage type is best for them and their situation.
Interest Rates: Fixed vs. Adjustable
It is essential to know the differences between fixed, adjustable, or hybrid (combination) mortgages.
Fixed-rate loans: A fixed interest rate loan is a rate that stays the same for the entire life of the mortgage loan. Although monthly escrow contributions for taxes and insurance may vary, your monthly payment of principal and interest will never change over the life of the loan. Month after month, year after year, there will be no surprises. You can expect to pay the same amount throughout the life of the loan.
Adjustable-rate loans: Adjustable mortgage loans do adjust after the initial fixed period. For example, a 5/1 ARM loan will start with a fixed rate for the first five years before adjusting annually. While you start with a lower rate, you will be left with uncertainty when the rate begins to adjust.
Loan Types: Government Insured vs. Conventional Loans
Interest rates are not the only thing to consider. You will also want to determine if a government issued loan or conventional loan will better suit you. It is important to remember that a conventional mortgage is not insured or guaranteed by the federal government.
Government Insured Loans
*All government insured loans can be combined with a fixed-rate or adjustable rate.
A Federal Housing Administration (FHA) loan is popular choice and available to many borrowers, (1st-time buyers or not). The primary advantage it offers is for the homebuyer to put down a low down payment. A low down payment is terrific, however the rates will increase.
Military service members and their families are offered a loan program by the U.S. Department of Veterans Affairs (VA which are guaranteed by the federal government. The VA will reimburse the lender for any losses. The most significant advantage is that service members may receive 100% financing for their home purchase and not need to put down one penny for their down payment.
Loan Size: Conforming Loans vs. Jumbo Loans
•It is essential to consider the size of the loan you need to borrow to determine which of these two mortgage types are best.
Conforming Loan – This loan meets Fannie Mae or Freddie Mac’s guidelines and falls within their maximum size limits, currently $679,000.
Jumbo Loan – This loan exceeds the conforming loan limits established by Fannie Mae and Freddie Mac. Borrowers must have excellent credit and be able to put a more substantial down payment since these loans are riskier to lenders and tend to have higher payments.
Florida National Title has years of experience guiding Florida homebuyers through the real estate purchase and refinance experience and have helped them solve the problems that come up in the process. We will decipher the “legalese” and explain what we need and why we need it each step of the way. The blogs to follow will address specific issues to guide buyers to understand the process better and to help them avoid many of the pitfalls. Call us at (561)408-0729 or visit our website.
Florida National Title Services, LLC
250 S. Central Blvd., Suite 101
Jupiter, Florida 33458
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