The Combustible Adjustable Mortgage
You’ll pay a little more for a fixed rate mortgage for the peace of mind that your principle and interest payment will never increase but that’s not always the most appealing choice for some homebuyers.
The longer you intend to stay in your home,–generally five years or more–the safer you are with a fixed rate. But if you plan to occupy your home for only a short time, the adjustable rate mortgage or A.R.M. might be worth considering. You can buy a more expensive home with a lower interest rate, or you can take the difference in what you’d pay toward a fixed rate and put it into savings, if you’re that disciplined.
On the downside, risk is greater with an A.R.M., depending on its terms–when and by how much the loan adjusts in interest. An A.R.M. isn’t a bargain if you have to come up with several hundred dollars more per month after a short period, or if you have to refinance your A.R.M. into a fixed rate for several thousand dollars a few years later.
A hybrid loan may offer the best of both worlds. A hybrid is fixed for a period of time, such as five, seven or ten years, then adjusts to a new rate when the term ends, giving you plenty of time to sell your home before the first adjustment.
Talk to your lender, share your plans and calculate the differences in a fixed rate and an adjustable rate mortgage.
Merry Christmas, homebuyer! Don’t cash Mom and Dad’s check yet! Your loan could be denied if the money isn’t carefully documented.
Why? Gifts can cause confusion. Is your parents’ money a gift or a loan? Unless the terms are clearly defined, don’t mix the gift with your own funds. It alters your bank statements and raises your income both of which could muddy your financial picture.
Lenders require a paper trail for all monies, so no phone deposits. They also limit the size of gifts in relationship to the total down payment. Some loan programs require the borrower to contribute at least 3% to 5% of the down payment if the down payment is less than 20%, while other programs allow the entire down payment to be supplied by a gift.
To avoid questions, provide a certified down payment gifts letter or sign an affidavit that explain:
- The amount of the gift, accompanied by a corresponding cashier’s check, including a photocopy of the check
- The name and address of the gift-giver and relationship the gift-giver has to the homebuyer
- The purpose of the gift – to be used only as a down payment on the subject property, complete with the property’s address
- A statement confirming that the gift is not a loan, and does not need to be repaid
- Signatures of the borrower and the gift-giver
If you’re planning to use a gift as part or all of your down payment, ask your realtor how to meet all the appropriate requirements regarding down payment gifts.
The Joy of Older Homes
- The fairy-tale Tudor revival. The English Tudor revives late medieval architecture popularized during the House of Tudor reign, a period of unequaled enlightenment known for political reformation and the Renaissance. Late Gothic and ecclesiastical influences include charming leaded and stained glass windows, steep-pitch cathedral ceilings, arched doorways and exposed wood beams.
- The solid and home-y Craftsman bungalow. Popular as the middle-class retort to the fussy, formal Victorian style, the Craftsman ushered in minimalism, thanks to Frank Lloyd Wright and others. Craftsman homes celebrate wood, stone, iron, ceramic and glass artistry, with wood floors and wainscoting, large windows, built-in cabinets and hand-made Art Nouveau tiles.
- The automobile-loving Ranch. The mid-century ranch helped post-World War II families move to the sprawling suburbs while they commuted back to the city for work. Built with speed, ranch-style homes typically have no load-bearing walls in the interior of the home, making them easy and inexpensive to remodel. Get your atomic décor on with low-slung furniture, sputnik light fixtures and abstract art.
No matter which older home you choose, knowing a little history should bring you added enjoyment.
About Jumbo Loans
Each year, the Federal Housing Finance Agency (FHFA) publishes conforming loan limits for all loans eligible for purchase and guarantee by government-sponsored entities Fannie Mae and Freddie Mac. The current limits are $424,100 and $636,150, or higher, depending on housing costs in U.S. counties or territories. Jumbo mortgages are simply loans that exceed conventional limits.
Jumbo mortgage are non-conforming loans designed for the purchase of single-family luxury properties or homes in high-cost areas. They’re only available for owner-occupied homes, not vacation or second homes, or investment properties.
Without federal guarantees, lenders require unique qualifying and loan underwriting standards. Borrowers must have credit scores of 700 or above in order to lower their down payments to as little as five percent down. Income-to-debt ratios must fall between 36 percent and 43 percent, and borrowers must show liquid reserves equal to three to 12 months of mortgage payments, depending on the loan amount.
Lenders may have other requirements, and the final loan product must meet the Consumer Financial Protection Agency’s standards for a “qualified” mortgage. For example, a borrower who puts five percent down may be limited to a $1 million loan, while another borrower obtains a $2.5 million loan with 10 percent down. With 20 percent down, a $3 million mortgage is possible.
There are many advantages to obtaining a jumbo loan. Interest rates can approximate or equal those of conventional loans for qualified borrowers and can be deducted from federal income taxes on loans up to $1 million. As always, please consult your tax professional before making these decisions.
Contact our local BHHS Hodnett Cooper Real Estate Team to learn more!