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16 04, 2014

Mortgage 101: Is an FHA loan right for you?

April 16th, 2014|Blog, Loan Products, Mortgage 101|

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FHA loans are popular options because they allow borrowers to purchase a home with a relatively small down payment, and they are typically easier to qualify for than other loan types. While there are many advantages to FHA financing, they’re not the best option for everyone. If you have a good credit score and are able to make a 20 percent down payment, then a conventional loan might be a better option. Before deciding if an FHA mortgage is right for you, it’s important to understand what an FHA loan is and the possible benefits and drawbacks to this type of financing.

 

What is an FHA Loan?
An FHA loan is a mortgage that is insured by the Federal Housing Administration. The actual loan is funded by a traditional mortgage lender, but FHA backing means the lender is protected if the borrower defaults on mortgage payments. FHA-insured loans are less risky for lenders, allowing them to offer more lenient qualification standards. Because FHA loan programs offer easier qualifying guidelines than many other loan types, they can be a good option for borrowers who have poor credit or who may not have the funds to make a large down payment. Let’s take a look at some of the advantages and disadvantages of FHA loans.

 

Advantages of an FHA loan :

 

  • Easier to qualify – An FHA loan have more lenient qualifying requirements than a conventional loan and is typically one of the easiest types of mortgage loans to qualify for.

 

  • Low down payment –  An FHA loan only requires a 3.5% down payment, while a larger down payment is required for most conventional loans.

 

  • Less challenging credit requirements– The FHA insures loans for people with low credits scores. If you have less than perfect credit or have had financial […]
12 03, 2014

Mortgage 101: Fixed Rate Mortgage Vs. Adjustable Rate Mortgage…Which one is better for you?

March 12th, 2014|Blog, Buying a home, Loan Products, Mortgage 101|

When deciding on the right home mortgage, it helps to understand the difference between the two major mortgage types: fixed rate and adjustable rate. Each has its benefits, but one may be better than the other for your situation.


Fixed Rate Mortgage

With a fixed rate mortgage, the interest rate remains the same for the life of the loan. The interest rate is set when you take out the loan and will not change, regardless of how interest rates change in the marketplace.

Pros:

  • Locks in your best interest rate for the term of the loan
  • Your monthly payment remains the same even if your principal and interest rates change
  • Initial loan payments are applied toward your interest—and less to principal—although that reverses over time.

Cons:

  • Principal and interest payments are usually higher than most adjustable rate mortgages, at least in the initial years
  • To take advantage of an interest rate decrease, you would have to refinance

A good choice for:

  • Those more comfortable with predictable principle and interest payments that do not increase if interest rates rise
  • Those planning to stay in their home for 10 or more years


Adjustable Rate Mortgage (ARM)

The interest rate on an adjustable rate mortgage can go up or down. Initially, many ARMs will start at a lower interest rate than fixed rate mortgages. However, after this introductory period ends, your interest rate unlocks and adjusts periodically based on an outside index. Meaning your monthly payment may increase.

Pros:

  • Offers lower rates at the beginning of the loan, so you’ll have lower payments to start
  • If rates drop, payments may become lower without refinancing
  • While various types of ARMs are available, they adjust either annually or semi-annually; most of these loans come with caps that prevent your monthly payment from increasing significantly.

Cons:

  • If rates increase, your monthly payments […]
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