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Years You Plan to Stay in the House
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Recommended Program
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1-3
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3/1 ARM, 1 year ARM or 6 month ARM |
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3-5
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5/1 ARM |
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5-7
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7/1 ARM |
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7-10
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10/1 ARM, 30 year fixed or 15 year fixed |
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10+
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30 year fixed or 15 year fixed |
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Loan Programs
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Advantages
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Disadvantages
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| Fixed Rate Mortgages |
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30 year Fixed
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- Monthly payments are fixed over the life of the loan
- Interest rate does not change
- Protected if rates go up
- Can refinance if rates go down
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- Higher interest rate
- Higher mortgage payments
- Rate does not drop if interest rates improve
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15 year Fixed
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| Adjustable Rate Mortgages |
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10/1 ARM
7/1 ARM
3/1 ARM
1 year ARM
6 month ARM
1 month ARM
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- Lower initial monthly payment
- Lower payment over a shorter period of time
- Rates and payments may go down if rates improve
- May qualify for higher loan amounts
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- More risk
- Payments may change over time
- Potential for high payments if rates go up
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| Balloon Mortgages |
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7 Year
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- Lower initial monthly payment
- Lower payment over a shorter period of time
- Many balloon mortgages offer the option to convert to a new loan after the initial term.
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- Risk of rates being higher at the end of the initial fixed period
- Risk of foreclosure if you cannot make balloon payment or if you cannot refinance or if you cannot exercise the conversion option
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5 Year
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| First Time Buyer Programs |
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- Lower down payment
- Easier to qualify
- Sometimes you may get lower rates
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- May be subject to income and property value limitations
- Some programs which have government subsidies may have a recapture tax if you sell the house too early.
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| Stated Income Programs |
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- Don’t need to verify income
- Faster approval
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- Higher rates
- Higher down payment
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| No Points Programs |
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- Lower closing costs
- Less money required to close
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- Higher rates
- Higher down payment
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| Imperfect Credit Programs |
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- Potential for reestablishing credit if you pay your mortgage on time.
- When used for debt consolidation, you may be able to reduce your monthly debt payment
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- Higher rates
- Terms may not be as favorable
- Harder to get long term fixed loans
- Loans may have prepayment penalties
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| Home Equity Line of Credit |
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- You only borrow what you need
- Pay interest only on what you borrow
- Flexible access to funds
- Interest may be tax deductible
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Rates can change. The maximum interest rate is normally high.
Payments can change
Harder to refinance your first mortgage
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| Home Equity Fixed Loan |
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- Fixed payments
- Interest may be tax deductible
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- Higher interest rates than on 1st mortgages
- Harder to refinance your first mortgage
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