Interest rates on Fixed Rate Mortgages are still very low! If you plan to stay in your home for the long term, a consistent payment that never changes can help you prepare for your financial future. Plan your budget with a consistent mortgage payment at a low rate that will stay the same through the life of your loan.

Common types of fixed rate mortgages

The 15-year mortgage

You will pay less in interest. If you borrow $100,000 to purchase a home at a 4% interest rate, paying over a longer period of time will mean more interest on the money borrowed. So, a 15-year mortgage can significantly cut down on the interest that you pay. Add to that the lower interest rates that are often available for 15-year mortgages and you could have some big savings available.

Your monthly payment will likely be higher. Even with the lower interest rate, you will probably have a slightly higher payment with a 15-year mortgage. This happens because you are paying more towards principal from the beginning. But, you will be mortgage-free in half the time, which is no small feat.

The 30-year mortgage

You will pay more in interest. Longer mortgage means more interest charged. This is how banks and other lenders make their money. They loan you, the borrower, money and collect their interest over the 15 or 30 years it takes you to pay them back.
Your monthly payment will likely be lower. Because you are spreading out your payments over a longer period of time, they will almost always be lower with a 30-year mortgage. If your monthly budget is tight, this may be a better way to go.

How it Works

• Monthly payments are based on interest rate, principal loan amount, and amortized interest over 30 years. With a Fixed Rate Mortgage, your interest rate will never change, even if market rates increase!
• Your payment will not change throughout the life of the loan.
• Your actual payment will vary based on your situation and the current interest rates when you apply.
• Pay your mortgage off at any time without pre-payment penalties.

Have questions? Give us a call! One of our mortgage specialists would be happy to answer all of your questions.

How ARMs work
An adjustable-rate mortgage has an interest rate that can change at predetermined intervals. These adjustable-rate mortgage products can vary in several ways including the amount the rate can increase or decrease at each adjustment, the frequency of rate adjustments, the maximum cap on adjustments, and the length initial fixed-rate introductory period.

An ARM has two important features: the margin and the index. The margin is a specified number of percentage points that never changes, while the index is an interest rate that moves up or down with market conditions. The index plus the margin is the interest rate you pay. Margins are predetermined in your loan agreement and the index is published by an independent financial institution. There are various rate indices that are used as a benchmark for many forms of adjustable-rate financial products. Common indices include the prime rate as reported by the Wall Street Journal bank survey, Fed Funds Rate and the Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York.

Why ARM indexes are changing
For years, most adjustable-rate mortgages have used a benchmark rate index called LIBOR – London Interbank Offered Rate. In recent years, LIBOR has been phased out in a coordinated international effort and is being replaced by SOFR. LIBOR was criticized for being too heavily influenced and manipulated by the rate-setting banks. To reduce the manipulation and create an index based more closely on the rates US Financial Institutions are charging each other SOFR was adopted as a replacement.

When the change is happening: The transition to SOFR loans has already begun. Fannie Mae and Freddie Mac won't buy Libor ARMs around September of 2020 at which time many banks stopped offering LIBOR based ARM products.

The Federal Housing Administration, Department of Veterans Affairs and Department of Agriculture were scheduled to stop insuring or guaranteeing new Libor ARMs at the end of 2020.

As of early November 2020, Libor ARMs were still available for jumbo mortgages, but jumbos will have to move away from Libor by the end of 2021.

Shopping for a SOFR ARM
Adjustable rate mortgages can be advantageous for borrowers who have a shorter term outlook for the home they are buying. According to the National Association of Realtors, median homeownership duration is 13 years. Homeowners on the shorter end of that spectrum who may need to upgrade/downgrade or move for work within a 5-10 year period could capitalize on the lower introductory rate of an ARM product. Many ARM’s have an initial fixed rate introductory period of 5, 7, or 10 years which means their interest rate will be fixed for the majority of their period of homeownership. That initial fixed rate could offer sizeable savings in comparison to a 30 year fixed mortgage product.

What will happen to existing Libor loans?
All ARM contracts have language that allows lenders to find a replacement if the loan's index goes away. Eventually, existing Libor-indexed ARMs will be switched over to SOFR. The timing has yet to be worked out, depending partly on when British regulators call it quits on Libor.

On this side of the Atlantic, regulators have stressed the need for an "effective transition." The lender must provide notice 60 to 120 days before the first payment under the adjusted rate.

An FHA Home Loan may get you into a home with a low down payment. An FHA loan provides a government-insured loan with flexible loan options. One of the biggest hurdles that first time homebuyers face is saving up for a sizable down payment on a home. Even experienced homeowners may need to plan for a long time for a new home purchase. Fortunately, FHA loans may help some buyers get into the home of their dreams with a lower down payment.

What is an FHA loan?

FHA loans are mortgages backed by the U.S. Federal Housing Administration. Lenders, such as banks and credit unions, that provide FHA loans provide funding for home purchases while requiring a lower down payment. Buyers may get into a new home with as little as 3.5% down.

Using conventional loans, a lower down payment requires the borrower to get private mortgage insurance. This special type of insurance protects the lender just in case the borrower is not able to pay. The cost of PMI is added to the monthly payment until the amount of the loan reaches 20%. FHA loans, on the other hand, do not require PMI because they are backed by the U.S. government. Additional scrutiny is often required during the loan application process using an FHA loan.

What is required for an FHA loan?

Many of the same documents are required for an FHA loan that any potential lender will want to see: employment history, appraisal, debt-to-income ration. A few additional stipulations are also attached to the FHA loan process. Buyers may have to bring 3.5% of the purchase price as a down payment, more if they have a credit score below 580. FHA loans are only available for the borrower’s primary residence.

Credit requirements may also be lower for FHA loans, given other factors demonstrate that the borrower is able to manage their money responsibly. Each lender looks at individual applications and may ask for additional documentation or explanations. They are often able to work with buyers with a lower credit score or shorter credit history than in other situations.

How FHA Loans Work

• Purchase your home with as little as 3.5% down payment (compared to 20% required on most loans).
• 30-, 25-, 20- and 15-year terms are all available with fixed rates.
• 5-year adjustable rate mortgage available.
• Pay your mortgage off at any time without pre-payment penalties.

Have questions?  Give us a call!  One of our mortgage specialists would be happy to answer all of your questions.

**My City Mortgage is not affiliated with or acting on behalf of or at the direction of FHA, VA, USDA or the Federal Government.

Are you a military service member or veteran looking to buy a home? As a benefit of your service, the Department of Veterans Affairs offers unique resources to help those with military experience purchase a home with a low or zero down payment. The VA Loan is a valuable tool that military members and veterans may use to pursue home ownership. VA Loans offer flexible options as either Fixed Rate or Adjustable Rate mortgages.

VA loans are available and provide the buyer the chance to finance 100% of the purchase price of the home. This means no down payment is required. It is important to note that buyers will still need to qualify for the loan. This means that lenders will look at their credit and ability to pay the mortgage. If you are in a troubling financial position, a lender may want to see you pay down debt or save up money before they are willing to give you the loan.

You may also be responsible for closing costs, such as recording the title or paying lawyers to draw up all paperwork. This is negotiable with the seller and something to discuss with your realtor before making an offer on a home.

The VA Loan process

A VA loan works the same as most other home purchases, with a buyer making a written offer to purchase a home under specific conditions (price, closing cost assistance, other contingencies), and then going through an approval process with a lender. The key difference with a VA loan is that the Department of Veterans Affairs requires that all homes purchased through this program meet certain habitability requirements. They will send out a home inspector and appraiser to make sure that the home is in good working order and is worth what you are paying.

This step may sometimes cause delays, especially if repairs are needed after the inspector looks around. Issues at the home do not necessarily mean that the buyer cannot use the VA loan, just that repairs will need to be done before the home purchase can be completed. The VA recently started offering a VA loan to be used for homes that need renovation on a limited basis.

How VA Loans Work

• Purchase your home with as little as 0% down payment.
• 30-, 25-, 20- and 15-year terms are all available with fixed rates.
• 5-year adjustable rate mortgage available.
• Jumbo VA loans available.
• VA Streamline Refinance with a reduced funding fee and flexible documentation requirements – available for veterans currently in VA loans.
• No monthly PMI (Private Mortgage Insurance).
• VA loans are governed by the U.S. Department of Veterans Affairs.
• Pay your mortgage off at any time without pre-payment penalties.

Have questions?  Give us a call! One of our mortgage specialists would be happy to answer all of your questions.

**My City Mortgage is not affiliated with or acting on behalf of or at the direction of FHA, VA, USDA or the Federal Government.

Fix up your fixer-upper home with a Renovation Loan. If you have found the perfect home but it needs renovation, you can purchase the home and roll the costs of the renovation into your loan.

An FHA 203(k) Loan, allows buyers to finance the cost of the home and the renovation in one mortgage with a low rate.

Fannie Mae Homestyle & Freddie Mac Choice are renovation loans that follow conventional guidelines.

The VA also offers a similar renovation option for military and veterans to purchase a home and finance the required renovations to bring it up to standards set by the VA.

USDA renovation loans are 100% financing loans backed by the U.S. Department of Agriculture.

Rehab loans have similar pre-qualification requirements to a standard Conventional, FHA, VA or USDA loan - with additional documentation needed to be related to the renovation.

To view our complete renovation guide, click here.

USDA Loans offer flexible options as either Fixed Rate or Adjustable Rate mortgages. You may qualify with less than perfect credit. Buying a home with little or no down payment can provide opportunities for buyers that otherwise may not be able to become homeowners. Fortunately for today’s buyers, there are a few programs that can help them qualify for a mortgage with a very small down payment. One that is not widely discussed is the USDA Single Family Housing Guaranteed Loan Program.

What is a USDA home loan?

The United States Department of Agriculture, USDA, administers the program but does not actually loan money. Similar to loans backed by the Department of Veterans Affairs, VA, or Federal Housing Administration, FHA, these loans are guaranteed by the USDA. Private lenders, such as banks or credit unions, still loan money to the home buyer but they know that the USDA will pay if the borrower is unable.

This allows lenders to assume less risk, and as a result they are okay requiring less money down.

Who can use the USDA program?

Contrary to its name, the USDA loan is not only available for those in an agricultural setting. The USDA loan is designed to help “low and moderate income households the opportunity to own adequate, modest, decent, safe and sanitary dwellings as their primary residence in eligible rural areas.”

To use the USDA loan, applicants must meet income requirements and be purchasing a home for their own primary use in an eligible area. Potential homeowners can look up each property’s address to see if it qualifies or talk to a lender about using a USDA loan in their area. The loan can be used for new homes, existing homes, and even homes that need some renovations.

If coming up with a sizable down payment is holding you back from your dreams of home ownership, the USDA loan may be just the answer you are looking for.

How USDA Loans Work

• Purchase your home with as little as 0% down payment.
• 30-, 25-, 20- and 15-year terms are all available with fixed rates.
• 5-year adjustable rate mortgage available.
• No monthly PMI (Private Mortgage Insurance).
• USDA loans are governed by the U.S. Department of Agriculture.
• Pay your mortgage off at any time without pre-payment penalties.

Qualification Requirements

• Household income limits apply and are based on location.
• Only available in certain areas. Talk to a specialist today to see if it is an option for you!
• Buy a home with no money down (primary home).
• Refinance up to 100% of your primary home’s value.

Have questions?  Give us a call! One of our mortgage specialists would be happy to answer all of your questions.

**My City Mortgage is not affiliated with or acting on behalf of or at the direction of FHA, VA, USDA or the Federal Government.