Mortgage terms get your head spinning | Veteran ... - VA Loan News

Are you confused by all the VA mortgage product terminology? You're not alone.

Mortgage loans come in two major categories, government and conventional. Government loans consist of Federal Housing Authority, Veterans Administration and Rural Housing Services. Let's take a look at each:

* The U.S. Department of Veterans Affairs backs (but doesn't offer) loans to allow qualifying veterans and active servicemen and servicewomen the ability to obtain home-purchase loans with favorable terms. Like the FHA loan, it is easier to qualify for a VA loan than it would be to receive approval for a typical conventional loan. Certificates of eligibility are issued by the VA.

* Rural Housing Service, which is part of the U.S. Department of Agriculture, backs (but doesn't offer) loans for rural residents and requires no down payment and only minimal closing costs. Additionally, there are state and local financing programs available for low- to moderate-income buyers; some offer down-payment assistance and favorable interest

* Federal Housing Authority loans have lower down-payment requirements (currently 3.5 percent), are less restrictive in qualifying applicants and backed by the Department of Housing and Urban Development. Another attractive feature is that buyers can finance ("wrap in") allowable closing costs and sellers can contribute up to 6 percent of the purchase price for a buyer's closing costs. One caveat: FHA financing has loan limits.

rates. First-time buyers may be required to attend homeownership classes as part of the program. Upon completion of the classes, participants will receive a certificate of eligibility for their down payment assistance.

Conventional loans

* A conforming loan is one that is for an amount within the loan-limit guideline established by Fannie Mae and Freddie Mac. This loan limit can adjust annually. The traditional loan usually requires 5 percent down and offers competitive interest rates.

* Non-conforming loans, also called jumbo loans, are those that exceed the maximum loan amount set forth by Fannie and Freddie and generally the interest rate will be slightly higher than the rate charged for conforming loans. This product offers 30-year and 15-year fixed-rate loans, as well as competitive ARMs. Single-family homes, condos, PUDs and single-family second homes can be financed with no prepayment penalty.

In addition, there is another product referred to as B/C loans. This type of mortgage could be offered to a borrower whose credit is tainted by late payments, a past bankruptcy or other financial issue. It's used as a temporary measure until the applicant qualifies for preferred financing (A loan). Rates and program terms vary.

Some other mortgage terms:

* Fixed mortgages: A set, or fixed-interest rate for a specific period of time. The shorter the period of time, the more favorable the rate.

* Adjustable mortgages: As the terms suggests, the interest rate is subject to fluctuations over the life of the loan. Periodic adjustments will be made in accordance with the terms of the loan. Generally, there is a fixed-interest rate for a period of time, after which the loan is reviewed and the interest is adjusted based upon the one-year Treasury securities index. The adjusted rate doesn't necessarily go up; it can remain the same or even go down. Most ARMs have a cap on the amount of increase to protect from extraordinary adjustments.

When trying to determine whether a fixed mortgage or an adjustable mortgage is the more beneficial option, ask yourself how long you plan to stay in the home. If the answer is five to seven years, you should opt for the ARM where your interest rate will be very attractive during the first several years.

A 15- or 30-year fixed rate is recommended for owners who plan to reside in their home for the long term. Monthly payments will be a few hundred dollars higher for the 15-year loan; however, a savings of several thousand dollars will be realized over the life of it when compared to a 30-year loan.

A reputable loan originator will be able to provide advice on what type of financing best fits your needs and budget.

Jean Kearney McGillick is a real-estate agent at Coldwell Banker Residential Brokerage's Chelmsford office.

Source: http://www.valoannews.com/veteran-news/do-mortgage-terms-get-your-head-spinning-a-refresher.html

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