HOW WILL I PAY FOR MY NEW HOME – FINANCING OPTIONS FOR BUYERS
What lender you choose to work with and what financing options you select will affect both how much you pay at closing and how much you pay each month for the life of your loan. Kathe can work with you and your lender to help you select the product that makes the most sense for you.
Some options to consider include:
Fixed rate loans – the principal and interest payments are the same each month over the life of the loan
Variable rate loans (ARMs)– the principal and interest payments change periodically – interest rates are tied to one or more indexes or margins. Some variable rate products start off with a short fixed period (such as a “5-and-1 ARM”). While there are generally ceilings on how high the interest rate on an ARM can go, the rates generally start out lower than a fixed rate mortgage because of the uncertainty involved. ARMs may end up being cheaper if interest rates decline or if you do not plan to own your home for a long time. Choosing an ARM product may also help you qualify for a higher loan amount because the payments are initially lower – just be sure you feel that you can handle the increased payment amounts when the loan adjusts.
Loan term: Most loans are for either 15, 20 or 30 years. Some loans are “balloon” loans, with a shorter term and a large final payment.
Loan Products: There is a wide array of loan products available, designed to accommodate the needs of just about any potential buyer. Below is a brief listing of some of these products.
- First Time Home Buyer Program
- Thirty and Fifteen Year Fixed Rate Loans
- 3, 5, 7 or 10 Year ARM Instruments
- Advanced Equity Loans (so you can buy before you sell)
- No points, fees or closing cost Loans
- New Construction Loans
- FHA/VA Financing
- Rehab Loans
- Jumbo Loans (those that exceed the conforming limit of $484,350)
- Pledged Asset Mortgages (where you can pledge assets without selling them to meet downpayment requirements)
- Home Equity Loans/ Lines of Credit
- Bi-Weekly Mortgage Payment Plans (by making what amounts to one extra mortgage payment per year you can pay off a 30-year mortgage about 10 years earlier)
- PHFA Loans (PA state low income home ownership and closing cost assistance programs)
Annual Percentage Rate (APR): This takes into account the face interest rate of the loan, as well as all points and fees that you pay in connection with the loan. The more “points” you pay to a lender, the lower your face interest rate will be. You should compare the APRs among the loans you are considering, along with the amount of time you think you will own the home, to choose the right product for you.
Escrows: If your primary mortgage is for more than 80% of the purchase price, the lender will escrow (or collect from you each month) the insurance and taxes and pay these for you. If you wish to self-escrow, be sure to tell the lender that up-front – some lenders charge you for the privilege of paying your own taxes!
Mortgage Insurance: If your primary mortgage is for more than 80% of the purchase price, you will be required to pay mortgage insurance, which is usually charged both as a lump-sum initial payment and ongoing monthly payments. Once you have 20% equity in your home, you can request that your lender remove this monthly fee. You can also discuss with your lender whether a two-loan program would allow you to avoid these fees altogether.
Conforming Loans: Conforming loans are first mortgages on property (as opposed to Home Equity Loans or second mortgages) which are less that $484,350. If you need to borrow more than $484,350 to purchase your new home, this would entail a “Jumbo” loan product. Rates on jumbo loan products are always more than rates on conforming loan products. Consult with your mortgage broker as to whether using two loans, a conforming first loan and a second mortgage, would be financially more advisable for you than using a jumbo loan.
One Final Note: Be sure to use a local mortgage broker rather than a “friend” in another state or on-line source of funds. Those not used to our tax structure can make miscalculations when qualifying you for your loan, and you may not be able to purchase the home you had hoped for.
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Sewickley, PA 15143