LOANS to Buy Property

LOAN PROGRAMS
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15 Year or 30 Year Fixed Rate

Loan Programs

Years you plan to stay in the house Recommended program
1-3 3/1 ARM, 1 year ARM or 6 month ARM
3-5 5/1 ARM
5-7 7/1 ARM
7-10 10/1 ARM, 30 year fixed or 15 year fixed
10+ 30 year fixed or 15 year fixed
What Are The Basic Loan Types?





Advantages
Maximum interest deduction for taxes, sometimes easier to qualify, stable predictable payments, high lo
an to value, lower down payment, possible secondary financing if needed.


 
Disadvantage
Pay more interest over the life of the loan, higher starting interest rate, Lower debt ratio (Larger In
come to qualify) Higher monthly payment.

Adjustable Rate Mortgage (ARM)


Advantages
Lowest starting interest rates
help qualify for higher loan amounts. If you plan to sell within 2-3 years. If you expect your income to increase


 
Disadvantage
Periodic payment and rate increases, builds equity Slower payment increases may affect budget.

5 - 7 YEAR BALLOON MORTGAGE


Advantages
Lower starting rate than 30 year fixedgreat for refinancing from a higher rate use when you plan a move in 5-7 years Some are convertible to 30-yr fixed or a treasury ARM, low fees, good rates.


 
Disadvantage
Loan Balance Due can Change Long Term Financial Planning If You Plan to Live There Over 7 Years.

What Are The Basic Loan Types?
There are many loan products designed to meet the borrowers individual criteria. Most of these products fall under a few basic loan types.  



  • 15-Year and 30-Year Fixed Rate
    Payment and rate stay the same from start to finish
  • 5 and 7 Year Balloons
    Lower start rate. Some of the balloon programs may be converted to an adjustable rate or a fixed rate af
    ter the 5 or 7 years, with very low fee and attractive rate
  • Adjustable Rate Mortgage (ARM)
    Lowest start rate Adjusts either every 6 months or every 12 months depending on program and grade and is
    based on the economy 6% ceiling for prime and 7% ceiling for sub-prime.
  • 5/1 and 7/1 Fixed Rate
    Rate is fixed for the first 5 or 7 years, then shifts to an adjustable rate mortgage (ARM).
  • 2/28 and 3/27 ARM
    An ARM program that is fixed for the first 2 or 3 years, then shifts into a 6 month adjustable rate mor
    tgage. It is a sub-prime program giving you a rate lower than the sub-prime 30-year fixed, and if you have had credit
    problems, it allows a window of time for credit rebuilding and seasoning. You will then want to refinance this loan.

What Should I Look For?


Are You Moving in the First Few Years?
You may want to consider a balloon mortgage. Some balloon loans allow you to convert to a longer term if you find the 5 or 7 years was not enough time. Conversions are easy and reasonable. When you consider this loan, ask if the program is convertible.


Do You Need the Lowest Possible Rate to Qualify?
To qualify for the house you want, an adjustable rate or a 7-year balloon may be the answer.


Do You Want a Fixed Predictable Loan?
If you want a fixed predictable loan for a long time, the 15-year or 30-year fixed is probably the best, especially when you have good credit.


Which Program Is Best For Me?

Here are a few things to keep in mind when selecting a loan program. (see column to right)

Unless otherwise indicated, these APR calculations are based on the following: Conforming loans (whose maximum loan amount is below $333,700 for the contiguous states, District of Columbia, and Puerto Rico or below $500,550 for Alaska, Guam, Hawaii and the Virgin Islands) are calculated based on a loan amount of $322,700 with closing costs of $6,454. Jumbo Loans (whose maximum loan amount exceed $333,700 for the contiguous states, District of Columbia, and Puerto Rico or exceed $500,550 for Alaska, Guam, Hawaii and the Virgin Islands) are calculated based on a loan amount of $500,000 with closing costs of $10,000. Your actual APR may be different depending upon these factors.

 
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