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Home buyers are concerned about interest rates. However, most underestimate the importance of choosing the right mortgage. A loan needs to be customized to your needs and real estate goals.
Let's begin with a quick lesson on several types of loans to consider when financing a purchase:
A fixed interest rate is fixed for the entire term of the loan. You may select 10, 15, 20, 25, 30 and 40 year loans. Fixed rate loans are available in Conventional, FHA, and VA loans.
Adjustable Rate Loan: also known as a variable rate loan or an ARM refers to the interest rate that goes up and down over the life of the loan. The interest rate is adjusted to coincide with changes in the index on which the rate is based.
There is a cap in the interest rate so it does not exceed a certain percentage. The benefit to this type of loan is that the interest rate is usually lower than a fixed interest rate which may allow you to qualify for a larger loan amount and purchase price.
Benefit: if you are going to stay or own the property for a short amount of time.
Assumable Loan: the buyer assumes the seller's loan with the seller's interest rate and terms. The buyer may pay the seller the remainder, equity, in cash.
Balloon Payment Loan: this loan has a fixed rate with a shortened due date. At the end of the loan, the borrower, would have to make a lump sum payment to the bank or refinancing the loan amount.
Benefit: Increases your level of qualification. Provides a lower interest rate than a 30-year fixed rate loan. But the full amount of the loan may be due in 5 to 7 years.
Buy-Down: this allows you to buy down the beginning interest rate by paying the bank additional money upfront and lowering your monthly payments.
CalHFA - California Housing Finance Agency. They offer several loan options through their approved lenders including 30 and 40 year mortgages.
Conventional Loans: adjustable rate, fixed rate and balloon payment are all types of conventional loans. A FHA or VA loan are not.
FHA Loan: is a loan from the Federal Housing Administration that is secured by investors. This type of loan is used when the buyer does not have a large down payment. The FHA program has a cap on the maximum amount of the loan. Check with your lender on the requirements of this program. (Great for First Time Buyers)
Fixed rate: the loan is at a fixed rate of interest over the life of the loan. Basically, you will know what your payments are every month.
Benefit: if you stay or plan to own the property for 3 years or longer, a fixed rate will be better for you.
Interest Only: you pay the interest percentage rate of the loan only. Your monthly payment does not reduce the principal of the loan.
VA Loan: If you have served in the US Armed Forces, you may apply for a VA loan which guarantees up to 100% of the purchase price and requires little or no down payment. The loan is assumable to subsequent buyers. The maximum VA loan amount is $417,000. The seller pays much of the closing costs...so you would have to find a seller willing to do that.
Talk to a real estate mortgage professionals today about your real estate financing goals.
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