Mortgage Options Explained
De-Mystifying The Process
It has taken some time, but you’ve found the house that fits your needs. Now that you’re ready to close, you’re hearing all kinds of mortgage terms thrown at you…ARMs and FRMs, zero-down options and jumbos. What does it all mean?
PrimeWay Federal Credit Union can help you figure it out. Let’s start with the most basic and popular mortgage.
This is the classic mortgage in the United States and considered the easiest for borrowers to comprehend. With the fixed-rate mortgage, the interest rate you pay remains the same over the life of the loan, typically 15 or 30 years. This option provides the most predictability in terms of what you’ll pay month to month on your principal and interest, but your interest rates will be higher than another popular option, at least at the beginning.
Commonly referred to as ARMs, the adjustable-rate mortgage usually offers a low “teaser” interest rate that will remain in effect for a finite period of time, say, between one month and one year. Then the interest rate floats, meaning it could rise or fall based on any number of indices the lender may employ. The benefit is that borrowers have a lower initial payment, but they must be willing to absorb the impact of interest rate changes that could push their mortgage payments higher in any given month.
Simply put, these are mortgages that exceed $417,000, as of 2010, for most of the U.S., including Texas. The threshold is set by Fannie Mae and Freddie Mac, two government agencies that purchase the bulk of U.S. residential mortgages from lenders so that money is freed up to offer more mortgages to the public. A mortgage becomes “jumbo” when it exceeds the conventional conforming loan limit.
These loans are considered higher risk for the lender because the homes often are more difficult to sell quickly at full price to recoup losses when a loan defaults. Jumbo mortgages also often come with a higher interest rate and may require a larger down payment than other mortgages.
Zero-Down Payment Mortgages
These mortgages mean the borrower will finance 100 percent of the cost of the home and bring no down payment to the closing. An alternative to this is a low down payment mortgage where the buyer provides a 3 percent or 4 percent down payment, for example. These are popular options for first-time home buyers who simply haven’t saved up enough money for the traditional 20 percent down payment, or who want to use their money to furnish their home after purchase.
Head over to Member Home Loan today and see how much of a loan you’re qualified to receive.
Still have questions about which mortgage is right for you? We’re happy to help. Call us at (713) 799-6200 today.