Toledo Ohio Home Loan

Finance Information

How much home can you afford? Use our finance center to learn about your loan options below. There are several loan programs available, and depending on your credit history, there is bound to be one that is perfect for you. Here are a few examples of the most popular programs offered today:

Understanding a Home Loan

 

Today's home buyer has more financing options than ever before. In addition to traditional mortgages, adjustable-rate, and hybrid loans, there are financing packages designed to meet the needs of virtually anyone.

While the different choices may seem overwhelming at first, the overall goal is really quite simple. You want to find a home loan that fits both your current financial situation and your future plans. Though this article discusses some of the more common loan types, you should spend time talking with different lenders before deciding on the right loan for your situation.

General categories of an Ohio Home Loan: Most loans fall into three major categories: fixed-rate, adjustable-rate, and hybrid loans that combine features of both.


Fixed-Rate Loans

The fixed-rate mortgage is the most popular mortgage program in use today. Fixed-rate loans offer the borrower a fixed interest rate for the life of the loan, typically 15 to 30 years. Borrowers have peace of mind knowing that their monthly payment will not change over time. Conventional fixed-rate mortgages have underwriting requirements established by Freddie Mac and Fannie Mae, and require certain down-payment and debt-to-equity ratios to qualify. Fixed-rate loans are especially attractive to buyers who plan to stay in their home for more than a few years.

Fixed-rate mortgages

As the name implies, a fixed-rate mortgage carries the same interest rate for the life of the home loan. This mortgage loan type can help protect against inflation. They are most common in 30-year and 15-year terms, but recently more lenders have begun offering 20-year and 40-year loans.

Adjustable Rate Loans

With an Adjustable Rate Mortgage (ARM), the interest rate changes periodically, and payments go up or down accordingly. Rates are tied to an index that reflects the cost of money at any given point in time. Generally speaking, lenders charge a lower initial interest rate for the ARM than for the fixed rate mortgage. If you are expecting interest rates to decrease in the future, or if you are trying to maximize your purchase power today knowing your income will rise in the future, then this loan may be right for you. Adjustable rate loans are attractive for buyers who expect to be in the home for a short period of time.


Adjustable-rate mortgages (ARM)


Adjustable-rate mortgages differ from fixed-rate mortgages in that the interest rate and monthly payment can change over the life of the loan. This is because the interest rate for an ARM is tied to an index (such as Treasury Securities) that may rise or fall over time. In order to protect against dramatic increases in the rate, ARM loans usually have caps that limit the rate from rising above a certain amount between adjustments (i.e. no more than 2 percent a year), as well as a ceiling on how much the rate can go up during the life of the loan (i.e. no more than 6 percent). With these protections and low introductory rates, ARM loans have become the most widely accepted alternative to fixed-rate mortgages.

Hybrid Home Loan

Hybrid loans combine features of both fixed-rate and adjustable-rate mortgages. Typically, a hybrid loan may start with a fixed-rate for a certain length of time, and then later convert to an adjustable-rate mortgage. However, be sure to check with your lender to find out how much the rate may increase after the conversion, as some hybrid loans do not have interest rate caps for the first adjustment period.

Other hybrid loans may start with a fixed interest rate for several years, and then later change to another (usually higher) fixed interest rate for the remainder of the loan term. Lenders frequently charge a lower introductory interest rate for hybrid loans vs. a traditional fixed-rate mortgage, which makes hybrid loans attractive to homeowners who desire the stability of a fixed-rate, but only plan to stay in their properties for a short time.


Balloon payments

A balloon payment refers to a loan that has a large, final payment due at the end of the loan. For example, there are currently fixed-rate loans which allow homeowners to make payments based on a 30-year loan, even though the entire balance of the loan may be due (the balloon payment) after 7 years. As with some hybrid loans, balloon loans may be attractive to homeowners who do not plan to stay in their house more than a short period of time.

Conventional Home Loan

A conventional loan is simply a loan offered by a traditional private lender. They may be fixed-rate, adjustable, hybrid, or other types. While conventional loans may be harder to qualify for than government-backed loans, they often require less paperwork and typically do not have a maximum allowable amount.

FHA and VA Loans

The Federal Housing Administration  (FHA), offers loans for low-to-moderate-income home buyers. FHA loans have lower down payments, and have relatively easier requirements than conventional fixed-rate mortgages. FHA mortgages have no income restrictions and even those with lower credit scores may be considered. Past bankruptcy does not necessarily disqualify borrowers from using this program.

In addition, the Department of Veterans Affairs (VA) offers a zero-down mortgage program. To take advantage of this program, borrowers need to be among those listed as veterans and service personnel in the U.S. military. One of the biggest benefits of this program is that it eliminates the need for private mortgage insurance.  There is extra information available on VA benefits, or see the official website.  This program is available for a Toledo Home Loan.
 

More about FHA and VA loans

U.S. government loan programs such as those of the Federal Housing Authority (FHA) and Department of Veterans Affairs (VA) are designed to promote home ownership for people who might not otherwise be able to qualify for a conventional loan. Both FHA and VA loans have lower qualifying ratios than conventional loans, and often require smaller or no down payments.

Bear in mind, however, that FHA and VA loans are not issued by the government; rather, the loans are made by private lenders. FHA loans are insured to the actual lender and VA loans are guaranteed in case the borrower defaults. Remember too, that while any U.S. citizen may apply for a FHA loan, VA loans are only available to veterans or their spouses and certain government employees.  An Ohio Home Loan can be processed through these programs.

Time as a factor in your Home Loan choice

As has been discussed, the length of time you plan to own a property may have a strong influence on the type of loan you choose. For example, if you plan to stay in a home for 10 years or longer, a traditional fixed-rate mortgage may be your best bet. But if you plan on owning a home for a very short period (5 years or less), then the low introductory rate of an adjustable-rate mortgage may make the most financial sense. In general, ARMs have the lowest introductory interest rates, followed by hybrid loans, and then traditional fixed-rate mortgages.

Learn More about Home Financing

A mortgage is a security for the loan that the lender makes to the borrower.  While a mortgage in itself is not a debt, it is the lender's security for the debt.



Private Mortgage Insurance

Private Mortgage Insurance (PMI) is required for any borrower who takes out a home loan with less than 20% down.  This extra insurance is collected through the Mortgage Payment to insure the lender against default.  When can you get PMI canceled?  By providing the mortgage company with an appraisal proving your equity has exceeded the 20% threshold. You can then request that your private mortgage insurance be canceled.

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How do I know how much I can afford?

How big a mortgage payment can I afford to make every month have based on my income? Home buyers have to ask themselves this question.

One easy way to answer this question is to calculate your DTI or Debt to Income ratio. Understanding that ratio does not require a computer, and figuring it out doesn't require a lot of difficult mathematical calculations. Look at it this way: if your mortgage is a third of your gross income then the ratio of your mortgage to your gross income is one-third or .33.

And when we say "mortgage" that also includes the expenses of homeowners insurance and property taxes. Beyond your mortgage, insurance and taxes, you also have other regular expenses to think about.

If you know your Debt to Income Ratio (DTI), when you sit down with a mortgage lender each of you will have a better idea of what you can afford, and how large a loan you are qualified to receive.

And let's look at your debt to income ratio exactly like a lender will; then you will be more prepared. Mortgage lenders look at two ratios, one for your combined mortgage, mortgage insurance,and property taxes as a percent of your gross income, and a second for that amount plus your total "recurring" monthly debt as a percent of your gross income. Most people have other fixed monthly bills like car payments and credit card expenses.

For a conventional mortgage, the two ratios are typically set at .29 and .36 while for an FHA loan the ratios are usually set a little higher at .33 and .43

Let's look at an example for someone with a gross Income of $50,000.00 year:
Yearly Gross Income = $50,000 / Divided by 12 = $4166.00 per month income.
$4166.00 Monthly Income x .33 = $1,374.78 allowed for mortgage, insurance and taxes.
$4166.00 Monthly Income x .38 = $1583.08 allowed for those costs plus other recurring debt.

 

Every lender uses these standard ratios to determine how large a home mortgage you can afford.  They also apply to anyone seeking a loan modification to an existing mortgage or seeking to refinance. Although each lender may allow a higher or lower percentage, they still want to know you have enough income to make the payment at the rate they have set. 
 

Home Loan & Finance Definitions and Things to Know:

 

Different Types of Loans

Refinancing

Closing Cost

Length of Mortgage

Saving for a Down Payment

Leveraging your Money

How Mortgage Loans Work

When to Pay Points

Adjustable Rate Mortgages

Local Area Moving Company - Stevens Worlwide Van Lines

Getting your Finances in Order

Your Credit History - Credit Score

Mortgage Glossary

Free CMA Request (Home Value)

Neighborhood Information

 

   

 

 

 

Contact Information

Photo of Victoria's Luxury Home Team Real Estate
Victoria's Luxury Home Team
The Danberry Co. Realtors
3555 Briarfield
Maumee OH 43537
Cell : 419-460-5587