1. Convert an adjustable rate mortgage to a fixed rate mortgage.

Adjustable rate mortgages (ARMs) are great while interest rates are low. But if the indexes on which ARMs are calculated begin to rise, a fixed rate mortgage could save you thousands of dollars over the life of your mortgage. Understanding how your ARM is calculated is critical to deciding if a refinance makes sense.

2. Take cash out of your home by freeing up equity.

If your home is worth substantially more than you owe, you might be able to refinance and take out some of the difference in the form of cash. Cash-out refinances are often used to make major purchases, such as to pay college tuition or purchase another home. If this is something you’re considering, it’s important to know that the more cash you take out, the higher your new interest rate will be.

3. Lower your monthly interest rate.

This is the most common reason homeowners decide to refinance. If interest rates are lower today than they were when you obtained your original loan, you might be able to refinance and obtain a lower rate. With current interest rates among the lowest seen in years, this could be a lucrative decision.

Conventional Mortgages

A conventional mortgage is a home loan that isn’t backed by the federal government and conforms strict to guidelines created by Freddie Mac and Fannie Mae. Conventional mortgages can have interest rates that are either fixed or adjustable.

• FIXED RATE MORTGAGES have an interest rate for the amount owed that does not change over the life of the loan. The life of a loan is referred to as the loan’s term. Payments remain consistent over the loan’s term making it easier to plan and budget over the long-term.

• ADJUSTABLE RATE MORTGAGES (ARMs) have an interest rate which changes on a periodically adjusted basis. The rate is determined using one of several financial indices and is regulated by terms in the borrower’s loan paperwork.

It is important to note that ARM payments may change over time as the interest rate adjusts according to its index. Variable rate mortgages are usually characterized by a lower interest rate, saving borrowers money, but can create more uncertainty for the borrower as the monthly payments change over the life of the loan.

Conforming Mortgages

A conforming loan is a type or mortgage loan that conforms to either Fannie Mae or Freddie Mac guidelines. The size of the loan is one of the most common reasons why a loan would be categorized as non-conforming. Throughout Western North Carolina, the maximum loan amount for a single family home is $453,100.

However, there are many reasons why a loan might be considered non-conforming. Additional common reasons include the amount of down payment and the credit risk profile of the borrower. Often non-conforming loans carry a higher interest rate due to their increased risk.

Government Loans

Beverly-Hanks regularly works with three common types of government loans:

FHA Loans

Federal Housing Administration (FHA) loans are government-backed mortgages designed to make homeownership more accessible. In most cases, the credit standards for FHA loans are more relaxed, making them appealing to first-time home buyers. Often, down payment requirements are lower and lenders are more lenient when considering credit scores. The leniency extends to the waiting period after a borrower has experienced a foreclosure or bankruptcy.

The flexibility and more lenient credit standards associated with FHA mortgage do come at a cost to homebuyers. When buyers are approved for an FHA loan, they are required to carry mortgage insurance. Mortgage insurance protects lenders against homeowners who are no longer able to make their monthly mortgage payments. Two types of mortgage insurance are required for an FHA mortgage:

• An Up Front Mortgage Insurance Payment (UFMIP).
• The Mortgage Insurance Premium (MIP).

The upfront premium is 1.75% of the loan amount. The second is called the annual premium, which is paid monthly. The annual premium for an FHA loan varies based on the term of the loan and the amount borrowed compared to the property’s value.

FHA Down Payment

As far as commonly available mortgages are concerned, FHA loans require a lower down payment than most. A down payment of 3.5% is required for maximum financing. When obtaining an FHA mortgage, you’re able to use your own savings, gift money from a family member, or a grant from a government down-payment assistance program to make your down payment.

FHA Credit Scores

While an FHA-backed mortgage with a 580 credit score is theoretically available to borrowers, not many lenders will approve a loan if a borrower’s credit scores under 620.

You should consider an FHA mortgage if:

• You have a limited amount of your own money for a down payment.
• You’ve had some credit challenges in the past.
• You’d like the sellers to contribute to your closing costs.

Veterans Affairs (VA) Loans

The national VA department helps servicemembers, veterans, and eligible surviving spouses become homeowners. The VA Home Loans program provides a home loan guaranty benefit and other housing-related programs to help you buy, build, repair, retain, or adapt a home for your own personal occupancy.

While loans are provided by private lenders, the VA guarantees a portion of the loan, enabling lenders like Beverly-Hanks & Associates Mortgage Services to provide you with more favorable terms. This assistance has two main benefits:

1. Purchase loans allow you to purchase a home at a competitive interest rate, often without a required downpayment or private mortgage insurance.
2. Cash Out Refinance loans allow you to take cash out of your home equity to take care of concerns like paying off debt, funding school, or making home improvements.

VA-guaranteed loans are available for homes for your occupancy or a spouse and/or dependent (for active duty service members). To be eligible, you must have satisfactory credit, sufficient income to meet the expected monthly expenses, and a valid Certificate of Eligibility (COE).

Learn more about VA Home Loans at benefits.va.gov.

USDA Loans

USDA Rural Development helps lenders work with low- and moderate-income families living in rural areas to make homeownership a reality. The USDA offers two main types of purchase loans to individuals:

Single Family Housing Guaranteed Loan Program

This program assists approved lenders in providing low- and moderate-income households the opportunity to own adequate, modest, decent, safe and sanitary dwellings as their primary residence in eligible rural areas. Eligible applicants may build, rehabilitate, improve, or relocate a dwelling in an eligible rural area. The program provides a 90% loan note guarantee to approved lenders like Beverly-Hanks & Associates Mortgage Services in order to reduce the risk of extending 100% loans to eligible rural homebuyers.

Check eligible addresses for the loan guarantees. Visit the USDA Income and Property Eligibility website for complete details.

Single Family Housing Direct Home Loans

Also known as the Section 502 Direct Loan Program, this program assists low- and very-low-income applicants obtain decent, safe, and sanitary housing in eligible rural areas by providing payment assistance to increase an applicant’s repayment ability. Payment assistance is a type of subsidy that reduces the mortgage payment for a short time. The amount of assistance is determined by the adjusted family income.

Applicants must meet income eligibility for a direct loan. Generally, rural areas with a population less than 35,000 are eligible. Visit the USDA Income and Property Eligibility website for complete details.