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Purchasing a new home is one of the most complicated transactions you will make. The most complex aspect of this transaction is the arrangement of financing. However with the assistance of a reliable mortgage company the loan process can move smoothly. |
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First consider what type of mortgage will best suit your financial plan and the house you choose. City Mortgage offers different types of loans that will meet the needs of virtually every potential customer, and we even have programs have programs that offer Low Documentation. The following are the different types of mortgages in the market today. Fixed Rate Mortgage(FRM) are loans paid off in equal payments over the term of the loan. These loans are also called level payment mortgages. The rate for this type of mortgage is at a constant level throughout the term. Adjustable Rate Mortgage(ARM) are loans that change interest rates with a predetermined market index. There are a variety of market indexes used, and the index will be set when the loan is made. Graduated Payment Mortgages(GPM) are loans in which payments gradually increase by a certain percentage over the first several years of the mortgage, then become fixed for the remaining term. Growing Equity Mortgages(GEM) are loans in which payments increase significantly each year according to a set or a preselected index. A Balloon mortgage is a loan that has a series of monthly payments with the remaining balance due in a lump sum at the end of the contract. Some balloon mortgages may contain provisions for refinancing at the end of the balloon period. |
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Which program is best for me? |
| Years you plan to stay in the house | Recommended Program |
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10 or more 7 - 10 5-7 3-5 1-3 |
30 or 15 year Fixed 7-10 10/1 ARM, 30 or 15 year Fixed 5-7 7/1 ARM 3-5 5/1 ARM 3/1 ARM, 1 year ARM or 6 month ARM |
| Loan Programs | Advantages | Disadvantages |
| Fixed Rate Mortgages |
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30 year Fixed 15 year Fixed |
(1) Fixed monthly payments over the life of the loan (2) Interest rate doesn't change (3) Protected if rates go up (4) Can refinance if rates go down |
(1) Higher interest rates (2) Higher mortgage payment (3) Rate doesn't drop if interest rates improve |
| Adjustable Rate Mortgage |
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10/1 ARM 7/1 ARM 3/1 ARM 1 year ARM 6 month ARM 1 month ARM |
(1) Lower initial monthly payment (2) Lower payment over a shorter period of time (3) Rates and payments may go down if rates improve (4) May qualify for higher loan amounts |
(1) More risk (2) Payments may change over time (3) Potential for high payments if rates go up |
| Balloon Mortgages |
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7 year 5 year |
(1) Lower initial monthly payment (2) Lower payment over a shorter period of time (3) Many balloon mortgages offer the option to convert to a new loan after the initial term |
(1) Risk of higher rates at the end of the initial fixed period (2) Risk of foreclosure if you cannot make balloon payments, refinance or exercise the conversion option |
| First Time Buyer Programs |
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(1) Lower down payment (2) Easier to qualify (3) Sometimes you may get lower rates |
(1) May be subject to income and property value limitations (2) Some programs which government subsidies may have a recapture tax if you sell the house too early |
| Stated Income Programs |
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(1) Do not need to verify income (2) Faster approval |
(1) Higher rates (2) Higher down payment |
| No Point, No Fee Programs |
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(1) No closing costs (2) Less money required to close |
(1) Higher rates (2) Higher payments |
| Imperfect Credit Programs |
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(1) Potential for reestablishing credit if you pay your mortgage on time (2) When used for debt consolidation, you may be able to reduce your monthly debt payment |
(1) Higher rates (2) Terms may not be as favorable (3) Harder to get long term fixed loans (4) Loans may have pre-payment penalties |
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