Lake Lanier Homes | Mortgage Strategies

Real Estate Tools | Buying | Selling

Mortgage Strategies...
When it comes to paying for a home, buyers today have an almost unlimited number of financing options from which to choose. They have before them a real "mortgage smorgasbord" - a table full of exotic names like "ARMS," "balloons, " and "buy downs."

Some involve financing assistance from the home seller. Others are from regular financial institutions like mortgage companies, banks and savings and loans. Here's a run-down on the main types of financing every home buyer should know today. Interest rates are intended for illustration only. Ask a Citihomes Associate or your lender for current market rates and more detailed information on loan products to suit your needs.

Conventional Mortgage
A conventional loan is an indebtedness or mortgage made between a lending institution and a borrower without a third party participant (such as VA or FHA). Most types of conventional loans are paid off in equal monthly payments spread over 15, 25, or 30 years. The interest rate stays the same for the life of the loan; therefore the monthly principal and interest payment also remains constant.

Terms of a conventional loan vary among lenders, but basically a loan can be obtained with as little as 5% down payment. When the down payment is less than 20% it is, in some cases, necessary for the loan to have private mortgage insurance (PMI) to protect the lender.

VA Loan
Qualified veterans (Reserves and National Guard also qualify) can take out loans exceeding $200,000 with no down payment and flexible underwriting guidelines; closing costs may be a gift. VA-guaranteed loans can be combined with second mortgages and are assumable (upon qualifying) by any future buyer. Payments are fixed for the full term.

FHA Loan
Strictly speaking, FHA (the Federal Housing Administration) does not make a loan; rather it insures loans, which makes lenders willing to finance home purchases on favorable terms. With an FHA loan the down payment can be as low as 2.25% for properties above $50,000 and 1.25% for properties below $50,000.

Discount Points may be paid by either the seller or the buyer. FHA charges an up-front Mortgage Insurance Premium, similar to Private Mortgage Insurance, that can be financed in the mortgage amount or paid in cash at settlement. The borrower must also pay an annual Mortgage Insurance Premium of .50% which is collected monthly.

ARMs (Adjustable Rate Mortgages)
ARMs are loans in which the interest rate is subject to change on a periodic basis. Advantage: a low initial interest rate, with payments that may decrease over time. Disadvantage: payments may also increase over time. ARMs may be risky if interest rates rise significantly and your income doesn't. They're popular with first-time buyers, and buyers who plan to move or refinance within 3 to 5 years.

Balloon Mortgage
These are short-term (5-7 year) loans, amortized over 30 years; they're repaid in equal monthly payments plus a "balloon" payment for the remaining balance. They enjoy lower interest rates and monthly payments than fixed-rate loans, but the borrower may risk needing to refinance the remaining balance when the term is up. The balloon mortgage is designed for borrowers who plan to move or refinance within the loan term. Some allow conversion to a fixed rate at the terms end.

Owner-Assisted Financing
Owners may finance first, second, third or fourth loans. They may loan their equity back as a first mortgage (often called a "take back").

Second Mortgage
The seller of the house lends the buyer enough money to make up the difference between the purchase price and the down payment/first-mortgage balance (a commercial lender may also make this kind of loan). The terms, including the interest rate, are based on buyer/seller agreement. It is often a short-term (5-15 year) loan; sometimes "interest only" payments are made until the term date, when the balance is due. A buyer can then pay off the loan or refinance.

Buy-Down Mortgage Plan
The seller (who in this case might be the home owner, the builder, or a third party) puts additional cash "up front" with the lender when the loan is closed, in exchange for a lower interest rate.

Non-Conforming Loans
Lenders National Mortgage Corporation has developed a new "Alternative Lending" division, providing home buyers with products that do not conform to the normal FHA/VA and conventional lending guidelines.

These unique loan products are tailored to fit specific financial situations, including:

Bankruptcies less than 2 years from discharge
No income/no asset verification loans
Late payments on previous or current mortgage
Bank statement programs for the self-employed
Excessive credit problems, but sufficient liquid assets to work with
Stated income with less than-perfect-credit and borrower has down payment