Knowing Your Mortgage Options Can Save You Money

Financially Fit is a column published by RCB Bank to help you gain knowledge on all things financial. Fitness guides – RCB Bank professionals in the field – offer ideas to help you strengthen your money sense, customize savings training, and provide quick

By: Derek Robinson | Category: Financial Services | Issue: September 2014

RCB Bank Mortgage Officer Derek Robinson with Abe Munoz, new homeowner in Broken Arrow.

When it comes to buying or refinancing a home, there are a lot of mortgage loan options available. Knowing the variety of possibilities can help you choose a loan that will best fit your needs and save you money in the long-term. Let’s explore the assortment of loan opportunities.
Conventional Loans: The most traditional avenue for purchasing or refinancing, this type of financing offers fixed terms up to 30 years with a required down payment of 5 percent with monthly private mortgage insurance (PMI). Borrowers who put 20 percent of the purchase price as a down payment or have 20 percent equity in their current home will avoid paying the monthly PMI. The current maximum loan limit (the limit on the size of a mortgage which Fannie Mae and Freddie Mac will guarantee) for a single family home is $417,000.
Jumbo Loans: An option to obtain loan amounts over $417,000. Jumbos are relatively similar to the conventional loan only with a slightly higher interest rate.
FHA Loans: Most commonly used by first-time home buyers or borrowers with limited credit history. FHA also offers fixed terms up to 30 years with 3.5 percent down payment and monthly mortgage insurance. Currently FHA requires a one-time upfront funding fee of 1.75 percent of the loan amount that can be financed into the loan. With more flexible guidelines than the conventional mortgage, the FHA mortgage was created to make home ownership more accessible.
VA Loans: A program specifically designed for veterans, the VA loan offers a fixed 15- or 30-year term with no monthly mortgage insurance required and 100 percent financing available. The VA loan is available to veterans, active service members and also eligible surviving spouses. Veterans Affairs (VA) guarantees a portion of the loan. There is a funding fee that varies depending on the type of service and times the eligibility has been used. Percentages can be found at www.va.gov.
USDA Loans: Commonly referred to as Rural Development Loans (RD). RD is designed to help low-to-moderate income earning households obtain financing for rural properties. Fixed terms up to 30 years and 100 percent financing (with monthly mortgage insurance) are available. Like the FHA loan there is an upfront guarantee fee of 2 percent that can be financed into the loan. This is a government-insured loan that is only available for primary residences.
Section 184 Loans: A program designed to offer financing to Native American and Alaskan Native tribal members. Fixed terms are available up to 30 years with a down payment of 2.25 percent on purchase prices of $50,000 or above, and 1.25 percent on all purchases below $50,000. HUD does require a 1.50 percent upfront guarantee fee that can be financed into the loan amount and does not require monthly mortgage insurance. This loan is guaranteed 100 percent by the office of Loan Guarantee within HUD’s Office of Native American Programs.
Adjustable Rate Mortgage (ARM): A specialized product designed for certain situations. ARMs have a fixed interest rate for a set number of years and then adjust to a variable interest rate that can change throughout the remaining term of the loan. Interest rate adjustments may move up or down depending on the direction of the mortgage index (rate set by market forces).
Knowing your options before you begin the home-buying or refinancing process can help you become a money-wise borrower and make sound financial decisions.
If you have mortgage questions, any one of RCB Bank’s Mortgage Loan Officers are happy to help at no obligation. For more savings tips and other financial articles, go to www.RCBbank.com/newsroom. RCB Bank is an Equal Housing Lender. RCB Bank NMLS #798151.

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