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Choosing a Loan Program

There isn't a single or simple answer to this question. The right type of mortgage for you depends on many different factors:

  • Your current financial picture
  • How you expect your finances to change
  • How long you intend to keep your house
  • How comfortable you are with your mortgage payment changing

For example, a 15-year fixed rate mortgage can save you many

thousands of dollars in interest payments over the life of the loan, but your monthly payments will be higher. An adjustable rate mortgage may get you started with a lower monthly payment than a fixed rate mortgage, but your payments could get higher when the interest rate changes.

The best way to find the "right" answer is to discuss your finances, your plans and financial prospects, and your preferences frankly with a mortgage professional.

There isn't a single or simple answer to this question. The right type of mortgage for you depends on many different factors:

  • Your current financial picture
  • How you expect your finances to change
  • How long you intend to keep your house
  • How comfortable you are with your mortgage payment changing

For example, a 15-year fixed rate mortgage can save you many

thousands of dollars in interest payments over the life of the loan, but your monthly payments will be higher. An adjustable rate mortgage may get you started with a lower monthly payment than a fixed rate mortgage, but your payments could get higher when the interest rate changes.

The best way to find the "right" answer is to discuss your finances, your plans and financial prospects, and your preferences frankly with a mortgage professional.

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Conventional and Jumbo Loans

Conventional loans are secured by government sponsored entities or GSEs such as Fannie Mae and Freddie Mac. Conventional loans can be made to purchase or refinance homes with first and second mortgages on single family to four family homes.

In general, Fannie Mae and Freddie Mac's single family, first mortgage loan limit is $417,000 in 2006. This limit is reviewed annually and, if needed, changed to reflect changes in the national average price for single family homes. The current loan limit applies to all conventional mortgages delivered after January 1, 2006.

2006 Conventional Loan Limits

First mortgages

  • One-family loans: $417,000
  • Two-family loans: $533,850
  • Three-family loans: $645,300
  • Four-family loans: $801,950

Loans which are larger than the limits set by Fannie Mae and Freddie Mac are called jumbo loans. Because jumbo loans are not funded by these government sponsored entities, they usually caryy a higher interest rate and some additional underwriting requirements. A strategy to lower your overall interest payments if your purchase or refinance balance is above $417,000 is to use a combination of both first and second trust money, referred to as an 80/10/10, 80/15/5 or 80/20. Every situation is different, but it is one more option to consider. 

Conventional loans are secured by government sponsored entities or GSEs such as Fannie Mae and Freddie Mac. Conventional loans can be made to purchase or refinance homes with first and second mortgages on single family to four family homes.

In general, Fannie Mae and Freddie Mac's single family, first mortgage loan limit is $417,000 in 2006. This limit is reviewed annually and, if needed, changed to reflect changes in the national average price for single family homes. The current loan limit applies to all conventional mortgages delivered after January 1, 2006.

2006 Conventional Loan Limits

First mortgages

  • One-family loans: $417,000
  • Two-family loans: $533,850
  • Three-family loans: $645,300
  • Four-family loans: $801,950

Loans which are larger than the limits set by Fannie Mae and Freddie Mac are called jumbo loans. Because jumbo loans are not funded by these government sponsored entities, they usually caryy a higher interest rate and some additional underwriting requirements. A strategy to lower your overall interest payments if your purchase or refinance balance is above $417,000 is to use a combination of both first and second trust money, referred to as an 80/10/10, 80/15/5 or 80/20. Every situation is different, but it is one more option to consider. 

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Fixed Rate Mortgage

With a fixed rate mortgage, you know exactly what your principal and interest payment will be each month for the life of your loan. It won't change because your interest rate doesn't change. Your taxes and insurance component of your payment towards escrow can change (and probably will) if your taxes and insurance change. Unfortunately, there's no way to lock those in. If interest rates go up, you're protected with a fixed rate mortgage. But, you won't benefit if rates go down. You can always take advantage of falling rates by refinancing.

Fixed rate mortgages might be right for you if you:

  • Want the security of a fixed principal and interest payment.
  • Think that interest rates will go up.
  • Are on a fixed or limited budget.

With a fixed rate mortgage, you know exactly what your principal and interest payment will be each month for the life of your loan. It won't change because your interest rate doesn't change. Your taxes and insurance component of your payment towards escrow can change (and probably will) if your taxes and insurance change. Unfortunately, there's no way to lock those in. If interest rates go up, you're protected with a fixed rate mortgage. But, you won't benefit if rates go down. You can always take advantage of falling rates by refinancing.

Fixed rate mortgages might be right for you if you:

  • Want the security of a fixed principal and interest payment.
  • Think that interest rates will go up.
  • Are on a fixed or limited budget.
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Adjustable Rate Mortgage (ARM)

Compared to fixed rate mortgages, Adjustable Rate Mortgages (ARMs) offer a lower interest rate to start, so your monthly payments are generally lower. But, the interest rate movees up and down with the market based on an "index." Some of the more common indices include the U.S. Treasury Bills, Cost of Funds Index (COFI), and the London Interbank Offered Rate (LIBOR). Most ARMs have an initial fixed rate period where the interest rate doesn't change followed by the rest of the loan's lifetime period where the rate is adjusted at predetermined intervals. Many ARMs have caps that limit how much your interest rate can change per period as well as for thel ife of the loan.

Adjustable rate mortgages might be right for you if you:

  • Want more property than you can qualify for now with a fixed rate.
  • Are confident you income will increase or rates will not go up much.
  • Plan on selling or refinancing within seven years of buying your home.

Compared to fixed rate mortgages, Adjustable Rate Mortgages (ARMs) offer a lower interest rate to start, so your monthly payments are generally lower. But, the interest rate movees up and down with the market based on an "index." Some of the more common indices include the U.S. Treasury Bills, Cost of Funds Index (COFI), and the London Interbank Offered Rate (LIBOR). Most ARMs have an initial fixed rate period where the interest rate doesn't change followed by the rest of the loan's lifetime period where the rate is adjusted at predetermined intervals. Many ARMs have caps that limit how much your interest rate can change per period as well as for thel ife of the loan.

Adjustable rate mortgages might be right for you if you:

  • Want more property than you can qualify for now with a fixed rate.
  • Are confident you income will increase or rates will not go up much.
  • Plan on selling or refinancing within seven years of buying your home.
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FHA

The Federal Housing Administration (FHA) provides a loan guarantee program instead of the standard private mortgage insurance (PMI) so qualified borrowers can get a mortgage loan with a down ayment as low as 4%. The FHA doesn't make the loan but rather they guarantee the loan, minimizing the lender's financial risk. FHA loans usually offer fairly liberal qualifying criteria compared to Fannie Mae and Freddie Mac and involve small down payments. They offer both fixed and adjustable loans.

By carefully considering the above factors and seeking our professional advice, you should be able to select the one loan that matches your present condition as well as your future financial goals.

The Federal Housing Administration (FHA) provides a loan guarantee program instead of the standard private mortgage insurance (PMI) so qualified borrowers can get a mortgage loan with a down ayment as low as 4%. The FHA doesn't make the loan but rather they guarantee the loan, minimizing the lender's financial risk. FHA loans usually offer fairly liberal qualifying criteria compared to Fannie Mae and Freddie Mac and involve small down payments. They offer both fixed and adjustable loans.

By carefully considering the above factors and seeking our professional advice, you should be able to select the one loan that matches your present condition as well as your future financial goals.

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Copyright © Diversified Funding Group All Rights Reserved

Copyright © Diversified Funding Group All Rights Reserved