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Home ownership - it's one of the biggest decisions you'll ever make. At Dancing Star Realty, we want to make your home purchase a very pleasant experience. Buying a home should not be a stressful but it should be one where you learn what loan program is best for you. This will be your decision in coordination with your lender.
Take a look at each type of home loan to decide which one is right for you:
*Please consult your tax adviser
This type of loan features a fixed interest rate that remains constant for the life of your loan - your monthly payments (principal and interest) will always be the same. Most homebuyers choose 15- or 30-year fixed-rate loans, although 10- and 20- year loans are also available. I've even heard of 40 year loans…of course, the interest rate is generally higher on these. Fixed-rate loans are usually your best choice when interest rates are low, and you plan to stay in your home for at least five years.
Fixed-rate mortgages include home loans for a variety of potential homebuyers. These include:
Adjustable Rate Mortgages (ARMs)
Also called ARMs, adjustable-rate mortgages have a unique interest rate feature that changes, or adjusts over the life of the loan. An ARM may be an attractive option if you desire a slightly lower interest rate during the initial stages of owning your home, if you expect that your income will rise in the future, and/or if you are not planning to stay in the same home for more than several years. An ARM may also have an initial interest rate that is lower than the interest on a fixed-rate loan.
Depending on your loan's requirements, your initial payments will begin with a fixed interest rate. After the stated timeframe in your loan agreement, your interest rate will be adjusted by adding a pre-determined margin to a specific index like Treasury bills or COFI (Cost of Funds Index). ARMs are generally referred to as 1/1, 3/1, 5/1, and/or 7/1 - this means that the initial fixed interest rate period is for one, three, five, or seven years, respectively, and the rate is adjusted every year thereafter for the life of the loan. In addition to the adjustment period (3/1, 5/1, and/or 7/1), there are other types of ARMs, including:
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A balloon mortgage is a fixed-rate loan with a set payment for a specific number of years, followed by a larger "balloon" payment, which is due at the end of the loan's term.
Balloon mortgages generally have a lower interest rate than a comparable fixed-rate mortgage. They are frequently used when buyers plan to sell or refinance their home within seven years, or want to qualify for a larger home. The balloon program's lower interest rate and monthly payment may make it possible for buyers to qualify for a larger home than expected.
Three scenarios in which a balloon mortgage may be right for you:
These are home loans that are sponsored by the FHA (Federal Housing Administration) and VA (Veteran's Administration)
If you live in an area where home prices are often over $359,650, you need to talk with your lender about Jumbo loans. Both fixed-and adjustable-rate loans are available - some up to $5,000,000!
You'll need to discuss with your lender how to use a combination of loans to eliminate the private mortgage insurance (PMI) requirement, by dividing your total amount financed into two mortgages, also called a first and second lien. For example, you may qualify for an 80/15/5 loan, which means you would finance 80% of your home's cost with the first lien, and 15% with the second lien - and just 5% down! These loan programs may also enable you to qualify for a lower interest rate.
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If you're not able to produce a 20% down payment to purchase a home, but want to avoid the additional expense of private mortgage insurance (PMI), you can combined a second mortgage to pay for all or most of the needed down. A creative lender will suggest this to you.
Instead of taking out a single mortgage, your lender can "split" your total mortgage into a first and second mortgage, eliminating the PMI requirement. These are often called combination loans. Usually, these loans divide your mortgage into the following percentages:
If you already own a home, but would like to take advantage of current low interest rates, you may be interested in refinancing your loan. Refinancing allows you to lower your monthly payments, get cash back, shorten the term of the mortgage, and consolidate your first and second mortgage into one loan.
Until recently, the rule of thumb for refinancing was to wait until mortgage interest rates were at least 2% lower than your current rate. But with newer low- and no-closing cost refinancing programs, you may benefit from refinancing with smaller rate reductions.
Take a look at some of these refinancing loans and guidelines to help you decide the right one for you:
Does building your dream home seem overwhelming? Don't worry, there are loans available that will help you into your home creating a one-step financing to finance the construction loan and the final loan all in one process! Doing this can save you money! When it comes to construction lending, some creative lender can offer construction loans for new home construction, renovation of a pre-existing home, or interest-only loans for real estate lots.
One-Time Close Option
The One-Time Close loan option features combined construction and mortgage financing, which simplifies building a home.
Mortgage Renovation Plus
If you're shopping for a home, you may have already found at least one property that would be perfect - with some renovations completed before you move in. That's where a Mortgage Renovation Plus financing can help. In addition to your home loan, you can receive additional funds for:
Found the perfect location for your custom-built home? Offered in conjunction with our One-Time Close option, the Lot Loans offer interest-only financing with a one-year term, so you'll have plenty of time to review your builder's plans before construction begins. Loans for up to two acres are available whether you're a city slicker, or your new home is "on the range."
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Home Equity Loans/Lines of Credit
A home equity loan/line of credit allows you to tap into the money you've invested in your home to finance larger debts, and usually at a lower interest rate than most revolving credit options.* For example, a home equity loan can help you remodel your home, send a child or grandchild to college, or consolidate any outstanding loans. (Some states prohibit or restrict equity-based loans and lines of credit. Please check with your lender before you apply.)
Another advantage of equity-based lending is that the interest paid may be tax-deductible. (Be sure to consult a tax professional for details.)
To find out what your current equity is worth, simply subtract your outstanding mortgage balance from your home's current value. Depending on the appraisal and loan program, your equity may be worth more than you originally thought. Take advantage of home equity loans with low fixed-rates and predictable payments and you'll receive all the funds up front. Usually, you can choose from the following equity-based financing that's best for your situation:
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