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Mortgage Rate Trends
Need a loan to finance your real estate purchase? Who doesn't? It is critical to know exactly what you are getting before signing loan documents. Here is a simplified guide to help you navigate through the loan search and familiarize you with some terms you can expect to find along the way.
You can get loans from mortgage brokers, mortgage bankers, commercial banks, savings and loans associations, credit unions, stock brokerages and online lenders, as well as private individuals. With so many lenders out there it can be difficult to choose whom to go with. Yet the most common way Americans get loans results from speaking to a mortgage broker. Mortgage brokers can have access to hundreds of lending institutions and can help you find and get the right loan based on your needs and personal information.
Conventional loans are basically loans available to excellent borrowers as indicated by a high credit score, 720 or above. Conventional loans can be conforming or non-conforming.
To get a loan your lender will need to information about your income, assets and debts. The amount you can borrow depends on your info. Generally institutional lenders will lend you 80% of the value of the home you are intending to purchase and require you have a 20% down payment, so that you cannot simply walk away from the property.
Are there limits to how much you can loan? Yes, on conforming loans, which is basically a conventional loan as outlined by the guidelines laid out by the Government Sponsored Enterprise (GSEs) such as Freddie Mac and Fannie Mae the limit is set at $417,000. In San Diego County, the limit for conforming loans is adjusted to $697,500. A conforming loan gives you the best interest rates and options.
For loans larger than $697,500, the interest rate increases and your options are reduced. These loans are known as "jumbo loans" or "non-conforming" loans. Jumbo loans usually require larger down payments because it is a riskier investment for the lender.
Fixed vs. ARM
Conventional loans come in two flavors: fixed rate mortgage and adjustable rate mortgage. A fixed rate mortgage has a fixed interest rate for the life of the loan so your payment stays the same for the life of your loan. An adjustable rate mortgage has a fixed interest rate for a specific number of years, then your rate adjusts annually and thus your payment also adjusts. Usually the interest rate is tied to some measure of market interest rates, such as the average yield on a 1-year U.S. Treasury security. There often is a maximum amount by which the rate can adjust or "re-set"each year.
Sometimes a lender will ask you to pay "points" as a condition of getting a loan. A point is a percentage point from the total money borrowed, 1% of the loan. For instance, if you are purchasing a $500,000 house with a 20% downpayment, your are borrowing $400,000. 1 point, for that loan would be four thousand, $4,000.
Banks use points to get their money ahead of time, as a guarantee against loss, in case of default, as well as to make the loans seem and sound more attractive. As a rule of thumb, for every point you pay, the bank should reduce your annual interest by 0.125%.
Non-Conventional Loan Types
Other loan options include FHA, VA, and CalVet loans.
An FHA loan allows for a down payment of 3.5% of the purchase price and has a more laxed credit score requirement compared to a conventional loan. In today's market, FHA loans are ideal for first time homeowners, but also those with a history of bankruptcy or foreclosure. You can get an FHA loan three (3) years after a foreclosure compared to the four (4) year waiting period for a conventional loan. The FHA only requires a two (2) year waiting period after a bankruptcy. Just 1/2 of the four (4) year waiting period for a conventional loan.
Another type of loan is the VA loan, this type of loan was made for military. If you are or have been in the military you can get a VA loan. For a VA loan you are not required to have a down payment.
An alternative for the VA loan for the California Veterans who were part of the following conflicts: WWI, WWII, Korean conflict, Vietnam War, Desert Storm, Operation Desert Shield, Operation Restore Hope in Somalia, Operation Enduring Freedom-Afghanistan, Operation Iraqi Freedom, all these are veterans who can qualify for a California Veteran loan. CalVet loans are loans sponsored and backed by the California Department of Veterans Affair. Generally, CalVet loans have less stringent requirements than VA loans which makes them more attractive.
To apply for CalVet loan you need a certificate of eligibility and a certificate of value. In general, the CalVet Department will not loan more money than the property is sold or apparised for, whichever is lower. CalVet loans can also be used for house remodeling and purchasing mobile homes. If you are unremarried widow of a Veteran residing in CA you may also qualify for a CalVet loan.