When wanting to buy a home, always check out your options for the type of mortgage that will fit your financial situation, at both the inception of the loan, as well as after the loan is closed and you are actively living in the home. Lenders across the country offer different products as it pertains to a mortgage and you want to do your research before settling on anything in writing. Not all loan products are treated equal and not all loan products are a one size fits all. TYPES OF MORTGAGES: CONVENTIONAL LOANS A conventional loan is a mortgage loan that is not backed by a government agency. These loans sometimes provide some of the same benefits as the others and are most common. These loans are backed by mortgage lenders, like banks and other financial institutions. (Examples: Conforming or nonconforming, jumbos, portfolios, adjustable rate loans) CONS OF CONVENTIONAL MORTGAGES: • You have to pay PMI if the down payment is less than 20%. (Not with NFC, as we do not apply private mortgage insurance) • You’ll have to meet qualifications that may require a higher minimum credit score of 620 and lower debt-to-income. PROS OF CONVENTIONAL MORTGAGES: • Borrowers who can pay at least 3% – 5% down and have a minimum FICO® Score of 620 can typically benefit from conventional loans. • Borrowers with a debt-to-income of 50% or less can typically benefit from conventional loans. ADJUSTABLE-RATE MORTGAGE (ARM) An ARM is an Adjustable Rate Mortgage and unlike fixed rate mortgages that have an interest rate that remains the same for the life of the loan, the interest rate on an ARM will change periodically. The initial interest rate of an ARM is lower than that of a fixed-rate mortgage, also known as a “teaser rate” or “introductory rate”. PROS OF ADJUSTABLE-RATE MORTGAGES:: • They offer lower interest rates for the initial introductory period. • The initial low monthly payments allow for a more flexible budget and the opportunity to build up savings. CONS OF ADJUSTABLE-RATE MORTGAGES: • If the rate increases, it can dramatically increase your monthly payments once your introductory period is over. • It’s more difficult to predict your financial standing if interest rates and mortgage payments fluctuate. FIXED-RATE MORTGAGE A fixed-rate mortgage is a loan option with a specific interest rate for the entire term of the loan. The interest rate does not change and the borrower’s interest and principal payments will remain the same each month PROS OF FIXED-RATE MORTGAGES: • Monthly principal and interest payments don’t change over the life of your loan, making it easier to plan a budget. • Your loan can fully amortize over the term of the mortgage. 7
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