BUYING A HOME IN ARIZONA
TYPES OF LOANS
ADJUSTABLE RATE LOAN
Adjustable or variable rate refers to the fluctuating interest rate you’ll pay over the life of the loan. The rate is adjusted periodically to coincide with changes in the index on which the rate is based. The minimum and maximum amounts of adjustment, as well as the frequency of adjustment, are specified in the loan terms. An adjustable rate mortgage may allow you to qualify for a higher loan amount but maximums, caps and time frames should be considered before deciding on this type of loan.
A true assumable loan is rare today! This loan used to enable a buyer to pay the seller for the equity in the home and take over the payments without meeting any requirements. Assumables these days generally require standard income, credit and funds verification by the lender before the loan can be transferred to the buyer.
BALLOON PAYMENT LOAN
A balloon loan is amortized over a long period but the balance is due and payable much sooner, such as amortized over thirty years but due in five years. The loan also may be extendable or it may roll into a different type of loan. This could be an option if you expect to refinance before the loan is due or you plan to sell before that date. Discuss this option carefully with your loan consultant before accepting this type of loan.
If you have cash to spare, you can pay a portion of the interest upfront to reduce your monthly payments.
COMMUNITY HOMEBUYER’S PROGRAM
This program is designed to assist first-time buyers by offering a fixed rate and a low down payment, such as 3% to 5% down. The program doesn’t require cash reserves, and qualifying ratios are more lenient; however, the buyer’s income must fall within a certain range and a training course may be necessary if required by the program. Ask your loan consultant if this program is available in your community and whether or not you might qualify.
A loan that is not obtained under any government-insured program. It could be any type: fixed rate, adjustable, balloon, etc.
This program is beneficial for buyers who don’t have large down payments. The loan is insured by the Federal Housing Administration under Housing and Urban Development (HUD) and offers easier qualifying with less cash needed upfront but the condition of the property is strictly regulated. The Seller can pay a portion of the closing costs that would typically be paid by the buyer in a conventional loan program.
FIXED RATE LOAN
This loan has one interest rate that is constant throughout the loan.
This is a mortgage that has lower payments in the beginning that increase a determined amount (not based on current rate fluctuations as with an adjustable) usually on an annual schedule for a specific number of years.
A no-qualifying loan may be an option for those who can afford a larger down payment, generally 25% to 30% or more. Since the risk for the lender is virtually eliminated, the borrower doesn’t have to meet normal lender requirements such as proof of income.
People who have served in the U.S. armed forces can apply for a VA loan which covers up to 100% of the purchase price and requires little or no down payment. The seller pays much of the closing costs but those fees are added to the sales price of the home.