Types of Financing

Below you will find information about the various types of mortgages that are available to our buyers.  Some loans are better suited for particular individuals, depending on each individual financial situation and financing needs.

Fixed Rate Mortgage:  A fixed rate mortgage has the same payment for the entire term of the loan.  At the beginning of the loan, the interest payment is higher than the payment of the principal.  As the loan matures, the borrower will pay an increasing amount of the principal and a decreasing amount of interest to the point where the majority of the payment is the principal.  This is known as an amortized loan.

Balloon Mortgage:  This is a loan which must be paid off after a certain period. The advantage is an interest rate that is lower than a 30 year mortgage.

Adjustable-Rate Mortgage (ARM):  The interest rate on an ARM is linked to a financial index, such as a Treasury security or a cost of funds; your monthly payments can increase or decrease over the life of the loan, usually 25 to 30 years.  Interest rates can change monthly, annually, or every 3 or 5 years. Some ARMs have a cap on the interest rate increase to protect the borrower.  Other terms relating to an adjustable-rate mortgage are:

· Adjustment period: The length of time between interest rate changes. Example: one year ARM-interest changes annually.
· Cap: The limit on how much an interest rate or monthly payment can change at each adjustment or over the life of the loan.
· Conversion clause: A provision in some loans that enables you to change an ARM to a fixed rate loan, usually after the first adjustment period. This may require additionally fees.
· Index: A measure of interest rate changes used to determine changes in the loan’s interest rate over the term of the loan.
· Margin: The number of percentage points a lender adds to the index rate to calculate the ARM’s interest rate at each adjustment.

VA Loan:
 The VA does not lend money, but it guarantees a portion of the loan so that lenders who originate the loan feel comfortable with their risk. Qualified veterans can obtain loans with no down payment. VA-guaranteed loans can be combined with second mortgages and are assumable upon qualifying by any future buyer.

FHA Loan:  FHA does not lend money or make a loan; rather, it insures loans. The down payment can be as low as 2.25%. Discount points may be paid by either buyer or seller. FHA charges a 2.25% up front Mortgage Insurance Premium (or as little as 2% for a first time home buyer).

Interest Only Loans:
 A mortgage is “interest only” if the monthly mortgage payment does not include any repayment of principal for some period.  The payment consists of interest only.  During that period, the loan balance remains unchanged.  A loan that is interest only for the full term would not amortize. 
The above list of available loans is just a sample of common ways to finance the purchase of a new home or property.  Our professionals can also provide more information about options for buyers depending on their creditworthiness.  Buyers with high credit scores, for example, may qualify for No Income No Asset (NINA) documentation-type loans which reduces the required paper work to verify income and assets.  Each buyer’s situation is different.  Therefore, it is important to consult with a qualified mortgage professional to assess which financing option fits the property type and the buyer.