There are a variety of different home mortgages available to buyers in Flagstaff and nationwide. Deciding which of those mortgages is the right one for you can be a complex task. As always, partnering with the right mortgage professional for you can make this decision much easier.
Fixed Rate Mortgage vs. Adjustable Rate Mortgage (ARM)
One of the first choices you will face is whether you want a fixed rate or an adjustable rate mortgage. All mortgages fit into one of these two types, apart from some “hybrid” mortgages that combine a fixed period with an adjustable period through the life of the loan. Pros and cons will depend on your individual situation. The stability of a fixed rate loan is typically more attractive to borrowers; however, considering the lower initial fixed rate of an ARM for a home you don’t plan to own for long might make sense.
The interest rate is locked prior to funding the loan and that rate will remain the same throughout the entire term. The monthly principal and interest payment will remain unchanged throughout the life of the loan.
The interest rate will change or “adjust” from time to time over the course of the loan. Depending on the type of ARM loan you have, the frequency of change and initial fixed period can be different. If you have a 5/1 ARM, for example, the first five years of the loan will be fixed and then every year thereafter, the rate can adjust. This type of ARM is considered a “hybrid” as it has a five-year fixed period and then is adjustable annually after that.
Government Insured Mortgage vs. Conventional Loans
The next decision is whether you are eligible for a government insured loan or a conventional loan and which fits your situation the best.
These loans are offered with low down payments and the mortgage insurance required for a conventional loan with a loan vs. value of more than 80 percent comes from private mortgage insurance companies. Premiums can vary from one borrower to another. A borrower with excellent credit will have a lower premium than a borrower with a lower credit score, for example.
Jumbo vs. Conforming Loans
There is an additional distinction that must be made to determine the right home mortgage for you: the size of the loan. A conforming loan must “conform” to the guidelines set forth by Fannie Mae or Freddie Mac and must be below the maximum size limit for that city or county. Currently in Coconino County (Flagstaff), the conforming loan limit is $417,000. If your loan will exceed the maximum “conforming” limit, you will need to use a jumbo loan. Because of the increased risk with a jumbo loan, mainly due to its size, the borrower must have a larger down payment and excellent credit.
Federal Housing Administration is a type of mortgage loan managed by the Department of Housing and Urban Development (HUD). FHA loans are available to all borrowers, not just first-time homebuyers as some believe. Mortgage insurance is provided by the federal government. Low down payment options are available for an FHA mortgage.
The U.S. Department of Agriculture offers a loan in designated areas across the country to “rural residents who have a steady, low or modest income and yet are unable to obtain adequate housing through conventional financing.” The property you are looking to purchase must be in an area designated as rural by the USDA (we have many eligible areas just outside of Flagstaff) and the household income must be no higher than 115 percent of the adjusted area median income for the area. This varies county by county.
The U.S. Department of Veteran Affairs offers loans to military service members and their families. Similar to FHA and USDA loans, VA loans are guaranteed by the federal government.
I have briefly explained the general categories that loans fall into; however, within each of these are many other products and programs offered by lenders in the market.
If you have specific questions or topics you wish to have explored in this column, please submit to firstname.lastname@example.org, mail to 809 W Riordan Road, Suite 207, Flagstaff, AZ 86001, or phone in your request to 928.220.7767.
By Julie Dedmon
Julie Dedmon is a VP of Mortgage Lending with Guaranteed Rate in Flagstaff, AZ. Julie can be reached by email email@example.com, text or call 928-853-2727 or office phone 928-220-7767. You can also stay in touch by following her on Facebook, Twitter and Instagram. Dedmon’s office is located at 809 W Riordan Road, Suite 207, Flagstaff, AZ 86001. Being a native to Flagstaff, she knows your market!
Julie Dedmon NMLS ID: 206773 AZ – 0936447 – 0907078
NMLS ID #2611 (Nationwide Mortgage Licensing System www.nmlsconsumeraccess.org) • AZ – Guaranteed Rate, Inc. – 14811 N. Kierland Blvd., Ste. 100, Scottsdale, AZ, 85254 Mortgage Banker License #0907078
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