A fixed-rate home loan is a loan with an interest rate that never changes. A popular term (length) for fixed-rate loans is 30 years, buy many lenders offer other term options. Fixed-rate loans with shorter terms tend to require higher monthly payments, but less total interest paid over the life of the loan.
You lock in the security of a consistent rate, which is ideal if you plan to stay in the same home for a long time. And if rates suddenly go up, you'll keep the rate you had the day you closed on your loan.
Fixed-rate home loans may have a higher rate and payment than the initial period of a loan with an adjustable rate.
With an adjustable-rate mortgage (ARM), your rate may change based on national rate indexes (within certain limits). Adjustable-rate home loans have an initial fixed rate period after which the rate will adjust at stated periods. For example, a "5/1 ARM" is a loan with a fixed rate for 5 years, then one yearly adjustment for rest of the loan term. Each adjustment has annual and lifetime limits.
If you're planning on staying in your home for a shorter period of time, the initial low fixed rate of a 3/1, 5/1 or 10/1 ARM can keep your monthly payments low.
If rates rise and you're past you fixed period, your monthly payment could rise too. You could end up paying more each month than you did when you first obtained your loan.
A conventional loan isn't insured by the federal government. They typically require a minimum of 3-5% down and have both fixed or adjustable rate options. Popular conventional loan terms are 15 and 30-year. The maximum loan amount for conventional loans ranges between $453,100 and $679650 depending on the county where the property is located.
Conventional loans tend to involve less paperwork than government-backed loans in many cases. If you can make a down payment of 20% or more on a conventional loan, you won't have to carry mortgage insurance. Also, you may not be required to establish an escrow account.
If you can't make down payment of 20%, it's likely you'll have to carry mortgage insurance, and contrubute every month to an escrow account your lender will use to pay your property taxes and homeowner's insurance.
If you're looking for a loan with flexible credit requirements and a more manageable down payment, an FHA Loan - backed by the Federal Housing Administration - may be just the ticket.
Government-backed FHA Loans offer competitive rates, flexible credit requirements, and down payments as low as 3%. An FHA Loan is a great option for people who may not qualify for a conventional loan.
Both up-front mortgage insurance and monthly mortgage insurance are required for FHA Loans, while they can be optional in other situations. You'll also be required to have an escrow account to stay on top of your property taxes and insurance payments.
FHA STREAMLINE LOAN
FHA Streamline Loans are a unique refinance option for borrowers who already have an FHA loan.
Compared to many other loan types, the process of applying for an FHA Streamline refinancing is quicker and document requirements are simpler. And even if your equity is currently negative, certain types of FHA Streamline loans could still lower your payment.
Like any refinancing, there are fees involved. Also, an FHA Streamline may extend the term of your loan. The fees can offset any savings for a while, and a longer term could mean higher lifetime interest costs.
If you are a veteran, active duty service member, or surviving spouse of a veteran, you may be eligible for a well served benefit: A VA Loan.
Compared to many other loan types, VA Loans offer low rates and manageable down payments (that can actually be as low as $0 for qualifying borrowers!) They also don't require monthly mortgage insurance payments.
New VA Loans are only for primary residences. The amount you can borrow may be limited by your VA entitlement amount. VA Loans also require an up-front funding fee, unless you have a military service-related disability.
VA IRRRL (INTEREST RATE REDUCTION REFINANCE LOAN)
If you have a VA Loan, an IRRRL is a great way to lower your monthly payment. However, you can only use it to refinance to a VA Loan from a VA Loan.
No credit underwriting package is required by the VA when applying, and you may not need to pay any money out of pocket or get a property appraisal. Unless you're refinancing from a VA ARM loan to a fixed rate, you can expect your interest rate to drop with a successful VA IRRRL application.
A funding fee is required, though it can be financed into the loan. If you currently have a VA ARM loan and are using an IRRRL to refinance to a fixed rate loan, your rate may go up. With a VA IRRRL, you cannot take cash out.
You'd never guess, but jumbo is really big loan. Okay, maybe you would guess. A jumbo is a loan that exceeds conventional loan amount limits. Those limits are currently $453,100 - $679,650; depending on the county where the property is located.
Jumbos help you buy or refinance higher-valued properties, while still offering fixed and adjustable options.
Because the sort of property bought with a jumbo loan is expensive, it can be harder to sell. A bigger down payment is sometimes needed and rates tend to be higher.