Mortgage Loan ABC’s

Understanding the most common types of mortgage loans available today

There are many choices when it comes to the types of mortgage loans you can apply for when buying a home. Each one comes with it’s own set of options, qualifications, and rules. But it’s important to understand the most common types of loans at their most basic level. Especially once your Lender starts talking about rates, points and qualifying ratios! So here are your options. It’s as simple as A, B, C, and F (hey, nothing is perfect).

So, what is a mortgage? By definition, a mortgage is a legal document that promises property to the lender as security for payment of a debt.jsrealty4u mortgage loan propertyA: Adjustable-Rate (ARM)
JS Realty variable mortgage ratesThis is a mortgage in which the interest rate floats up or down according to a specified index. The interest rate is “adjusted” at certain time intervals (such as six months or one year), usually having a “cap rate” or maximum rate of change per adjustment interval (such as 1%, or 4%). Terms such as “one year ARM” generally identify the adjustment interval (interest rate adjusted after one year).

B: Balloon
jsrealty4u mortgage loans balloonThis is a unique type of loan, as it is rather short. You make a monthly payment for 5 – 7 years, based on a term of 30 years. There’s often a low interest rate, and it can be easier to qualify for this versus a traditional 30-year-fixed. A balloon mortgage can be an excellent option for many home buyers. There is, however, a risk to consider. At the end of your 5-7 year loan term you will need to pay off the outstanding balance. This usually requires you to either refinance, sell your home, or convert the balloon mortgage to a traditional mortgage at the current interest rate.

C: Conventional
JS Realty Loan mortgageThese loans are neither insured nor guaranteed by the government. As such, conventional loans represent a greater risk to lenders than government backed loans. Conventional loans can start with as low as 5% down, but if you can put at least  a 20% down payment (80% LTV) you can avoid paying private mortgage insurance.

F: FHA
Federal Housing Administration loans are available to all types of borrowers, not just first-time buyers. You can read more about the differences between a conventional loan and an FHA loan in one of our previous blogs.

JS Realty Lock Interest Rate mortgageF: Fixed Rate
The most common type of home loan is the fixed-rate mortgage. The interest rate remains the same for the life of the loan, so the principal and interest remain the same, too. This is one of the best reasons to buy vs rent, as rents rise over time where as most mortgages stay constant for the life of the loan.

If you’re interested in learning more, or would like to apply for a loan, contact our preferred lender, Keith Harris.

CONTINGENCY – WHAT DOES IT MEAN?

JS Realty puzzled confused woman problemreport desk frownYou make an offer on your dream home and within your offer there are several areas that you fill in that reference the word “contingency” – what does this mean, and why is it important?

 

CONTINGENCY
kənˈtinjənsē/
noun

A  future event or circumstance that is possible but cannot be predicted with certainty.

The contingencies you will encounter most in Real Estate are the home inspection contingency, financial contingency, and the appraisal contingency.

The most common contingency is the home inspection contingency. This contingency basically states that if, at any time during the home inspection process you and the seller are not able to reach agreeable terms, Security JS Realtyyou are allowed to void the contract and receive your earnest money deposit back without penalty. Essentially, these contingencies are there to protect YOU – the consumer – in the unforeseen event that something is not going well with the purchase of the home.

What if you make an offer but the seller finds that your financing contingency is just too long? Why do they care?

JS Realty Time Woman Upset Clock PromptFrom the Seller’s prospective all of the contingencies are a risk, and if you make the contingencies too long or to aggressive, you risk turning the Seller off in regards to your offer. Most Sellers are looking for short timelines and to secure the strongest offer they can get. So the bottom line is, keep your contingencies to a reasonable and attainable limit, protect yourself, but also help instill confidence and security within your offer to the Seller.

Happy Couple Keys Home JS RealtyBUYER TIP: If you are bidding on a home with multiple offers, sometimes it can help to shorten contingency periods – or waive them altogether. You may not necessarily have to pay more money, and you may win by just being more flexible!

If you are looking to buy or sell a home, or need help navigating or negotiating a contingency, contact us today – we would love to help!

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