Explore Mortgage Programs: What's Available And How To Apply

There are many mortgage programs available, and it can be overwhelming to choose the right one. It is important to understand the different types of mortgage loans and how they can serve your long-term homeownership needs. Mortgages are typically organised into categories based on the loan size and whether they are part of a government program. Government-backed loans, such as those from the Federal Housing Administration, often have lower credit score requirements and are ideal for first-time buyers. Conventional loans, on the other hand, have higher minimum credit score requirements and are harder to qualify for. There are also fixed-rate and adjustable-rate mortgages, which offer stability or flexibility, respectively, in interest rates and monthly payments. Other types of mortgage loans include construction loans, interest-only mortgages, and piggyback loans, each with its own unique features and suited to different financial situations.

Mortgage Programs Available in the US

Government-backed mortgage assistance programs

If you are looking to buy a home, you may want to consider exploring government-backed mortgage assistance programs or home loans. The federal government does not offer grants or "free money" to individuals to buy a home, and websites claiming to offer such things are often scams. However, there are several government-backed programs that can help you get a mortgage.

Federal Housing Administration (FHA) Loans

The Federal Housing Administration (FHA) manages the FHA loan program. It helps homebuyers by insuring their loans so that lenders can offer lower down payments and closing costs. FHA loans offer assistance to first-time homebuyers, seniors who partially or fully own their homes, and those buying a manufactured or mobile home. FHA loans have a lower credit score requirement than most home loans.

Department of Veterans Affairs (VA) Loans

The Department of Veterans Affairs (VA) helps veterans, surviving spouses, and service members get home loans. These loans can help you purchase a home, refinance your mortgage, or finance home repairs.

Indian Housing (Home) Loan Guarantee Program

The Indian Housing (Home) Loan Guarantee Program ("Section 184") is a home mortgage program designed for American Indian and Alaska Native families, Alaska villages, tribes, and Tribally Designated Entities.

Native American Direct Loan (NADL) Program

The Native American Direct Loan (NADL) program is for American Indian and Alaska Native veterans and veterans married to an American Indian or Alaska Native. It can help you purchase or build a home or improve your existing home.

State-Specific Programs

There are also various state-specific programs that offer down payment and closing cost assistance. For example, the Idaho Housing and Finance Association (IHFA) operates two programs that help with down payments and closing costs through forgivable second mortgages. Similarly, the Oklahoma Housing Finance Agency (OHFA) and REI Oklahoma both offer down payment and closing cost assistance to homebuyers in Oklahoma.

Fixed-rate mortgages

The interest rate on a fixed-rate mortgage is locked in at the beginning of the mortgage process, and it will not change even if the broader market conditions do. This can be beneficial if you plan to stay in your home for the long term, as it provides stability and security, knowing that your monthly payments will not increase.

In the early years of a fixed-rate mortgage, most of your monthly payments will go towards paying off the interest, with only a small portion going towards the principal loan amount. However, as you progress through the loan term, this allocation gradually shifts, and you will pay more towards the principal and less in interest. By the end of the loan, you may even pay significantly more towards the principal than the interest.

Adjustable-rate mortgages (ARMs)

ARMs are generally recommended for borrowers who plan to stay in their homes for only a few years or those who intend to refinance after the introductory period. This is because borrowers can take advantage of the low initial rate and then sell or refinance before the rate adjusts. While there is a risk of increased mortgage payments if the rate adjusts upward, it is important to note that the rate could also decrease, resulting in potential savings.

There are several types of ARM loans available, including hybrid ARMs, interest-only ARMs, and payment-option ARMs. Hybrid ARMs are the traditional form of adjustable-rate mortgages, with a fixed interest rate for a few years, usually three to ten, followed by rate adjustments on a preset schedule. Interest-only ARMs allow borrowers to make interest-only payments for a set period, after which they begin paying both principal and interest. Payment-option ARMs provide borrowers with flexibility, as they can choose their payment structure and schedule within certain parameters.

When considering an ARM, it is important to understand how the interest rate is determined. ARM loan rates are based on an index and margin and may adjust as outlined in the loan agreement. The index rate can change, but the margin remains fixed. Common indexes for ARM rates include the weekly constant maturity yield on the one-year Treasury bill, the 11th District cost of funds index (COFI), and the secured overnight financing rate (SOFR). The specific index followed by a particular ARM should be identified in the loan paperwork.

Construction-to-permanent loans

To obtain a construction-to-permanent loan, borrowers typically need to submit detailed plans and work with approved professionals. This includes hiring licensed, professional builders and submitting copies of their licenses, certificates, and/or resumes to the lender. Additionally, these loans usually require a down payment, which can be as high as 20% of the total loan amount. Since there is more risk involved in building a home, lenders typically have more stringent requirements for construction-to-permanent loans.

Reverse mortgages

The amount of money that can be borrowed through a reverse mortgage depends on the equity in the home, and the borrower's age. Unlike traditional mortgages, there are no monthly payments, and the loan is repaid when the borrower no longer lives in the home. Interest and fees are added to the loan balance each month, which increases the debt and decreases the equity. Reverse mortgages can be an expensive way to borrow, with higher fees and costs compared to other loan options. It is important to note that a reverse mortgage can limit future options as it must be paid back when the borrower moves or passes away, which may result in the borrower or their estate getting nothing from the sale of the home.

Borrowers considering a reverse mortgage should be aware of potential scams and seek information from legitimate sources, such as the US Department of Housing and Urban Development (HUD). Additionally, most reverse mortgages offer a three-day right to cancel without penalty, known as the right of "rescission." This allows borrowers to cancel the loan within three business days after closing, by notifying the lender in writing.

Overall, reverse mortgages can provide older homeowners with access to cash without the need to sell their homes immediately, but it is important to carefully consider the potential risks and financial implications before proceeding.

Frequently asked questions