In this edition of “Ask Nick”, Nick explains adjustable rate mortgages, what kind of customer service to look for in a good lender, and types of mortgages that require no down payment.
Q: Andrew: What is an ARM?
A: ARM stands for Adjustable Rate Mortgage. The interest rate on these loans fluctuates at predetermined times (generally every year, after the initial fixed period) and is based on two things:
1) An index: the standard that lenders use to determine the amount of interest a borrower will pay. The index fluctuates with the market.
2) The margin: a fixed percentage rate that is added to an index value.
At the time of adjustment, the margin is added to the index to determine an ARM’s new interest rate.
Adjustable rate mortgages have “caps” that limit the amount the rate can change at the time of adjustments and over the life of the loan.
Q: Bonnie: The loan process was very frustrating for us. We found the cheapest rate, but our loan contact was very slow, unresponsive and not thorough. This ended up causing us to lose our first house due to lack of simple checks from our loan person. How do you suggest making sure you find a loan company and contact that is reliable while still getting a good rate?
A: It is very important to find a lender who is responsive and with whom you feel comfortable. Finding a mortgage is a long process and you will be discussing your private financial information. I recommend that you interview several lenders, and ask them how they will provide service to you. Tell them what your needs and expectations are, and then listen to what they have to say. First impressions are often accurate, so consider how quickly they respond to your initial inquiry and whether or not they followed up with you as expected or promised. During this process, you should also be comparing programs, rates and fees.
Q: April: Is there type of mortgage that requires no down payment?
A: Yes, there are some loans that do not require a down payment. The most widely available loan that offers 100% financing is the VA loan program. Of course, VA loans are only available to active military or veterans who served a sufficient length of time to become eligible.
Aside from that, there are some 100% loan financing programs offered by banks as part of the Community Reinvestment Act or CRA, which is a federal law designed to encourage banks to meet the needs of all borrowers in their communities, including those in low and moderate income communities.
There are also DPAs, or down payment assistance programs that effectively provide 100% financing, as long as the required 3.5% down payment for FHA is funded through a grant or a silent second mortgage. These programs tend be restricted by income, home price restrictions, and location.
If you are considering any of these programs, there are a couple of things to keep in mind. These programs are more cumbersome than other loan programs and take longer to process, making the closing process of buying a home longer and more difficult.
Funding for these programs can also periodically become unavailable.
We’re always taking your questions! You can email them to us at AskNick@beazer.com. Nick answers every question, so you’ll be sure to get a personal response. Every week, we’ll post some of the “Ask Nick” questions and answers on our blog, Facebook, and Google Plus. Don’t forget to follow along on Twitter with the hashtag #AskNick.
* Beazer Homes is not acting as a mortgage broker or lender. Home buyers should consult with a mortgage broker or lender of their choice regarding mortgage loans and mortgage loan qualification. ©2013 Beazer Homes