Available Options

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An Adjustable Rate Mortgage (ARM) or Variable Rate Mortgage is a mortgage with an interest rate that may vary over the life of the loan.  This type of loan is usually tied to an index that changes after a pre-determined period.  Some of the most common indexes that ARMs are tied to include the US Prime Rate, Treasury Bill Rate or the LIBOR rate.  The purpose of the interest rate adjustment is primarily to bring the interest rate on the mortgage in line with current market rates.

Mortgage holders or Borrowers who choose this type of loan as an option are protected by a ceiling or a maximum interest rate, once the interest rates adjust on an annual basis after a predetermined period.

ARMs typically begin with more attractive (lower) rates than fixed rate mortgages therefore compensating the borrower for the risk of future interest rate fluctuations.  

Advantages of an ARM:      

• The borrower expects for interest rates to decrease in the future therefor expecting a lower monthly payment.
• The borrower doesn't intent to keep the mortgage for greater than 7 years.
• The borrower expects to pay off the loan in a short period of time.

Disadvantages of an ARM:

• Things don't go as planned and interest rates are higher in the future.
• A prepayment penalty may exist.

Common examples of Adjustable Rate Mortgages:

• 3/1 ARM - This means the initial interest rate is fixed for the first "3" years and then the interest rate adjusts every "1" year after the initial fixed term.
• 5/1 ARM - This means the initial interest rate is fixed for the first "5" years and then the interest rate adjusts every "1" year after the initial fixed term.
• 7/1 ARM - This means the initial interest rate is fixed for the first "7" years and then the interest rate adjusts every "1" year after the initial fixed term.

A conforming loan is any type of home loan that meets the mortgage limits set by the Federal Housing Finance Agency (FHFA)—an independent government agency.  These limits are based on property size and location and change annually with home prices.  Conforming loans are also required to meet government-sponsored enterprises Fannie Mae and Freddie Mac lending guidelines.  Home loans that fall outside the set limits are considered (non-conforming) and are called jumbo loans and tend to come with additional requirements.

Conforming Loan Limits 2024:

Number of Units  Continental U.S.  High - Cost Areas 

             1                $750,000             $1,125,000

             2                $960,300             $1,440,450 

             3             $1,160,750             $1,741,125 

             4             $1,442,600             $2,163,900

The most common type of home loan is a conventional, conforming loan. These mortgage loans are underwritten according to the guidelines set by both Fannie Mae and Freddie Mac. Since they follow a uniform set of underwriting guidelines the loans are able to be sold on the secondary market.  The most common reason for this is because a lender may need to sell the loan to an investor in order to free up capital in order to loan more money to other borrowers.Since these loans are able to be sold on the secondary market, they will offer the best interest rates and lowest costs for financing a home.  

Advantages of a Conventional Loan:

• A large variety of loan terms (10 year – 30 year options).     
• Low fixed or adjustable interest rate options.    
• Low down payment options (As little as 3% down payment), great option for "First time home buyers".       
• Sellers Contributions towards closing cost of up to 3%.

The terms conforming and conventional are sometimes used interchangeably. But these two adjectives mean different things, and sometimes they overlap.  A “conventional” mortgage loan is one that does not receive any kind of government insurance, guarantee or backing. This distinguishes them from the government-backed home loan programs like FHA, VA and USDA.  A “conforming” loan is simply a conventional mortgage product that meets or conforms to the size limits and other criteria used by Freddie Mac and Fannie Mae (government sponsor enterprises that buy loans from lenders)

FHA is a government backed loan program which was developed by the Federal Housing Administration.  FHA provides lenders with a set of guidelines that must be follow in order to have their loans insured. 

FHA guidelines do allow for easier access to home loans for low and moderate income households as well as borrowers with credit scores in the 500's.

Advantages of an FHA Mortgage:

• Low down payment (as little as 3.5% down with a 580 credit score).  Down payment source can include earnest money (deposits made to a seller in a real estate contract which shows the buyer's good faith in the transaction), tax credit and monetary gifts).
• Higher Debt to Income Ratio.
• Credit scores as low as 500 (with a 10% down payment)
• Loan can be assumable, so when you want to sell your homes down the road, this can be a huge selling tool if the rate on your FHA mortgage is a lot lower than the current market rates.      
• Mortgage Insurance can be tax deductible.   
• Can have "Seller Contributions" of up to 6% of the loan amount to cover buyers’ closing costs. 

A fixed-rate mortgage is one of the most common loan options among borrowers. With a fixed-rate mortgage, your interest rate will "fixed" for the life of the loan.  This means that your principal and interest payments will also stay the same for all the years of the  mortgage.  However, there could be a slight adjustments to your monthly mortgage payments if your property taxes or homeowners insurance changes during the life of your loan. 

In the early years after inception of the mortgage, a large percentage of the monthly payment pays the interest on the loan.  As the mortgage is paid down, more of the monthly payment is applied toward the principal. 

Advantages of a Fixed Rate Mortgages:

• Competitive interest rates of a 15 or 30 year term.  
• No interest rates fluctuations.  If rates in the market increase, your rate won’t change unless you decide to refinance to a different mortgage. 
• Lower monthly payments that can be spread out over many years, which could help borrowers qualify for a larger loan amount.

With today's low interest rates and high home prices,  jumbo loans have become increasingly popular. They allow buyers to afford bigger homes, often considered non-conforming because of the size of the mortgage, at very competitive interest rates and favorable down payment requirements.   

Jumbo mortgages can be financed with either a fixed or an adjustable rate jumbo mortgage.   When working with the team at "Exact Rate Mortgage", buyers can take advantage of locking in very competitive interest rates with no mortgage insurance premiums and up to 96.5% financing.   

Jumbo mortgages generally exceed the limits of conventional and conforming, government—backed loans. 

Conforming Loan Limits 2024:

Number of Units  Continental U.S.  High - Cost Areas 

             1                $750,000             $1,125,000

             2                $960,300             $1,440,450 

             3             $1,160,750             $1,741,125 

             4             $1,442,600             $2,163,900

A USDA mortgage is an option available when buying a home for borrowers interested in buying in a rural or suburban area.   These loans are issued by qualified lenders around the country and are guaranteed by the United States Department of Agriculture (USDA). 

Borrowers who take advantage of a USDA Mortgage must:

• Meet income qualification requirements.  Income cannot exceed 115% of median household income in the area where the home is located.
• Purchase a home to be used as their primary residence.
• Be a U.S. citizen, U.S. non-citizen national, or Qualified resident alien.
• Be unable to obtain conventional financing with no private mortgage insurance (PMI).
• Not be suspended or debarred from participation in federal programs.

What properties are eligible under a USDA Mortgage:

• Property must be located in a"designated" eligible rural area.
• Must be a single-family dwelling (may include detached, attached, PUD, condo, modular, and manufactured).
• No set acreage limits. Must be common for the area.

Advantages of a USDA Mortgages:

• $0 money down and $0 reserve requirements.
• Must be a 30 year "Fixed Rate" mortgage.
• Lenient eligibility requirements with competitive interest rates.
• Seller of property may provide up to 6% in contributions 

VA mortgages are one of the most powerful mortgage options on the market for Veterans, active military and surviving spouses.  The VA program allows for home financing with "zero down payment requirements".  This type of loan also has no monthly "MIP" (Mortgage Insurance Premiums typically assessed when the borrower does not put a 20% down payment).  VA mortgages often have the lowest monthly payments available.  Unlike other government sponsored programs, there is no income restrictions or maximum loan amount restrictions. 

Who can take advantage of a VA Mortgage:

• Veterans of the US Armed Forces who meet eligibility requirements typically (90 days in war time and 181 days in peace time).
• Active duty members of the US Armed Forces. (Must have served at least 90 continuous days)
• Served more than six years with the National Guard or Reserves (or 90 days under Title 32 with at least 30 of those days being consecutive)

VA Mortgage Income Requirements:

Applying for a VA Mortgage comes with providing very similar income verification documentation as any other regular conventional or FHA Loan: 

• 2 most recent pay stubs, last 2 years W2 for those not self employed.  
• For those self employed, last 2 years of Business Tax returns and a year to date interim financial statement with a comparable period for the prior year.  

Additionally the following  items are required:

• VA disability awards letter (if applicable)
• Social Security awards letter (if not currently employed by a company or self employed and are already receiving Social Security benefits).
• A DD-214, Statement of Service or Points Statement (depending on your service type)

Advantages of a VA Mortgages:

• No down payment required.
• No mortgage insurance premium.
• Higher debt to income ratio tolerance by lenders.
• Closing cost are limited.
• Seller of property may provide up to 4% in contributions 
• No prepayment penalties for paying off mortgage early.
• VA mortgages can be assumable by other veterans or surviving spouses.
• No loan limits.