Choosing a Loan

Whether you are purchasing a home or refinancing your current mortgage, you will need to decide on a loan type that will best fit your needs. There are three basic loan types.

Federal Housing Administration (FHA)

This is a loan insured by the Federal Housing Administration (FHA), a government agency. The agency insures repayment of the loan to a lender so that you are able to obtain a loan with a smaller downpayment. Mortgage Insurance is required on all FHA loans.

Veterans Administration (VA)

This loan is guaranteed by the Veterans Administration (VA), a government agency and is available toqualifying veterans only. The veteran is able to obtain a larger loan with very little or no down payment. The VA will charge a Funding Fee to guarantee this loan.

Conventional

This is a mortgage loan made without government insurance or guarantee to the lender. Depending uponthe amount of your down payment, the lender may require that you purchase mortgage insurance which helps insure against loss.

Within these three basic loan types, there are a variety of programs with different terms and repaymentprograms. You will need to evaluate such options when choosing your loan. Consult with your Advanced Funding Mortgage Specialist.

Adjustable Rate Mortgage

An adjustable rate mortgage (ARM) is a loan where the interest rate, and therefore the payment can change periodically. These changes can be up or down depending upon what is happening to the economy and to interest rates in general.

These loans adjust with the lender's risk. Therefore, many lenders are willing to offer more flexible terms including a lower initial interest rate. Most ARMs have interest rate or payment caps to protect the borrower against substantial increases from one adjustment period to another.

Some borrowers desire the traditional fixed rate mortgage. They prefer a monthly house payment thatwill not change. Here's how the two loans compare:

Fixed Rate Mortgage Benefits

Interest rate never goes up
Principal and interest payments never change
Steady, predictable decrease in the loan balance

Adjustable Rates Mortgage Benefits

Lower initial interest rates
Monthly payment may be lower
May be able to buy "more house" for the money
Rate and therefore payments could decrease

Decide for Yourself

Although each person's circumstances are different, the following guidelines may help you in choosing between a fixed rate or adjustable rate mortgage.

You may prefer a fixed rate mortgage if you:

Want a stable payment and prefer managing your finances from a fixed budget
Plan to stay in your home for five years or more
Think interest rates will rise while you own your home
Don't expect your income to increase significantly

On the other hand, you may want to consider an adjustable rate mortgage if you:

Expect that rates will move downward or stay about the same while you are in your home
Plan to move within three to five years or less
Need "more house" than you could otherwise afford with a fixed rate loan Believe your income will increase to handle any increase in the payment

What will the interest rate be on my loan?

The interest rate you will pay on your mortgage loan depends on a whole variety of factors. Among the most important of these are inflation expectations; the demand for money by all borrowers; the targets the Federal Reserve sets for the supply of money; and general economy and employment conditions.

Changes in these factors happen all the time and are brought about by change in the economy, worldaffairs or in government fiscal and monetary policies.

Interest rate fluctuations could occur during the time your loan is being processed. During your processyou can lock-in your rate, which guarantees you a specific rate if closed within a certain time period, i.e.,30 days, 60 days, etc. However, locking in may not be to your advantage if rates decrease during the loan approval process.

When applying for your mortgage loan ask your Advanced Funding Loan Specialist for additional information regarding these programs.

© Advanced Funding Home Mortgage Loans 470 East 3900 South, Salt Lake CIty, UT 84107-1880
(801) 265-1177; Toll-free (888) 571-HOME; Fax (800) 409-9342