Buying a home represents one of the most exciting times in your life – so exciting, in fact, that it’s easy to forget to cross a few t’s and dot a few i’s. That’s where our deep understanding of the loan process, paired with our talent at guiding our clients from point A to point B, sets us apart from most mortgage lenders. At Mortgage Atlanta, we don’t believe in cookie-cutter solutions. We can explore a variety of loan options together to determine the best fit for your needs.
Conventional loans – also known as conforming loans – are often backed by government-sponsored enterprises (GSE) like Fannie Mae or Freddie Mac. Short for Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac), both are corporations that trade in mortgages – providing access to affordable home financing for millions of Americans. Ideal for both first-time and seasoned home buyers who don’t wish to part with a large down payment, the minimum down payment for first-time homebuyers is 3% of the purchase price. For more seasoned buyers, the minimum down payment is 5%. Bear in mind that any down payment under 20% means the borrower will be required to pay private mortgage insurance (PMI) on their loan. In addition to primary residences, Fannie Mae and Freddie Mac also offer conventional loans on vacation or second homes, as well as investment properties. The interest rate and cost of conventional loans are determined by credit score, loan-to-value ratio, transaction type (purchase or refinance), occupancy type and property type. For example, a borrower putting down 15% on a single-family home with a 740 credit score will have a lower rate/cost than a borrower putting down 5% on a condo with a 690 credit score. Confused? Don’t worry, we’ll walk you through it!
Historically, the most popular loan for which borrowers try to qualify, is the traditional 30-year fixed-rate mortgage. It offers a steady interest rate and monthly payments that never change over the life of the loan. This may be a wise choice if you plan to stay in your home for a long time, you want to secure a stable payment, or both. When interest rates are low, fixed-rate loans can be fairly competitive with adjustable-rate mortgages and may be a better deal in the long run because you can lock in the rate for the life of your loan.
Much like the traditional 30-year fixed-rate mortgage, a 15-year fixed-rate mortgage offers a steady interest rate and monthly payments that never change over the life of the loan. The only exception is that this loan is fully amortized in half the time. Advantages over 30-year loan include the fact that 15-year loans often boast lower interest rates and you’ll have an opportunity to own your home twice as quickly. Unfortunately, it also means that you will have to commit to a higher monthly payment. Rather than having to stomach that kind of commitment in our ever-changing world, some borrowers opt for a 30-year fixed-rate loan and voluntarily make larger payments in order to pay off their loan in 15 years.
Hybrid Adjustable-Rate Mortgages (ARMs) can offer the best of both worlds: lower interest rates and a fixed payment for a longer period of time than most adjustable-rate loans. Available as 3/1, 5/1 or 7/1, the first number represents the number of years for which the fixed monthly payment and interest apply before converting to a traditional adjustable-rate mortgage loan. Once it converts, the payment and interest rate will be determined by then-current rates for the remaining life of the loan. This is a terrific option for borrowers who expect to move or refinance the loan before or shortly after the adjustment period. Before you choose an ARM, it’s important to fully understand the terms and potential for higher payments in the future. Your Mortgage Atlanta Loan Specialist will be happy to discuss the short-term benefits and potential long-term pitfalls of this loan option with you.