Different Mortgage Strategies
When it comes to paying for a home, buyers today have numerous financing options.
This is a summary of the primary alternatives. Information about rates and programs
is available from your
Long & Foster Sales Associate through your
Prosperity Mortgage® Company Loan Originator. Prosperity Mortgage is
a joint venture between Long & Foster and Wells Fargo Home Mortgage. Interest
rates are for illustration only.
Conventional/VA/FHA
Conventional Mortgage. A conventional loan is a mortgage made between a lender
and a borrower with no other parties involved (such as VA or FHA). Conventional
loans customarily require a 20% down payment. Down payments may be as low as 5%
with mortgage insurance.
Example: A buyer purchases a $400,000 home. The lender requires a 20% down
payment ($80,000). At 7% the $320,000 balance has a monthly P&I payment of $2,391
over 30 years. Mortgage insurance could lower the down payment requirement to 5%,
or $20,000, which increases the monthly payment.
Advantage: Conventional mortgages are straightforward and easy to understand.
Conventional loans offer the largest variety of financing options.
Fixed Rate conventional loans feature equal monthly payments that are made
over the term of the mortgage. The standard time period is 30 years or less. The
interest rate remains the same which keeps the principal and interest payments the
same over the term. Payments can vary if taxes or insurance escrow payments change.
Adjustable Rate loans are mortgages that allow for payments which change
periodically over the life or term of the mortgage. An ARM loan has a set interest
rate and payment for a period of time and then adjusts to the market rate at a predetermined
point. ARM loans feature lower rates over the initial loan period.
VA Loan. The letters ‘VA' stand for Veteran's Administration – a branch of
the US government. VA is not a lender but rather guarantees mortgages for lenders
to help eligible veterans. VA loans require no down payment up to the VA maximum
loan limit. VA loans can be assumed by qualified borrowers.
Example: A veteran purchases a $235,000 home. With no down payment the loan
amount is $240,050 including the VA Funding Fee, for a first time veteran's purchase.
At 6% interest over 30 years the monthly P&I payment is $1,439.
Advantage: VA requires no down payment. The seller can (but is not required
to) pay all closing costs for a veteran.
FHA Loan. FHA is the Federal Housing Administration, a division of the US
Department of Housing and Urban Development. FHA does not lend money; instead, like
VA, it insures mortgages allowing lenders to make loans that might not be eligible
for conventional financing. Down payments are as low as 3.5%*. Both fixed-rate and
ARM mortgages are available. FHA loans are assumable by qualified borrowers. FHA
mortgages have credit standards and other rules that are more flexible than typical
conventional mortgages.
Example: A buyer of a $200,000 home makes a down payment of $7,000. The loan
amount including up-front MIP would be $199,755. At 6% interest over 30 years the
monthly P&I payment is $1,198.
Advantage: FHA offers a low down payment.
Long & Foster® REAL ESTATE, INC. is not a mortgage lender. These figures
are provided by
Prosperity Mortgage® Company. Prosperity Mortgage is a joint venture between
Long & Foster and Wells Fargo Home Mortgage. The actual terms of any financing
are subject to the requirements of each individual case. Choosing the "best" mortgage
depends upon the circumstances of the individual borrower. Your
Long & Foster Sales Associate will be happy to refer you to a
Prosperity Mortgage® Company loan officer to explain the options available to each
buyer for mortgage financing.