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Wisconsin Real Estate Mortgage Products: Different Loans for Different Folks

By Eleanor Boschert

All mortgages are not created the same and there are a wide variety of loan configurations out there designed to suit your particular financial situation. Applying for a mortgage is a life-changing transaction, so take the time to shop around, review options, and negotiate terms that are the right fit for your home buying needs. Here's an overview of some of the most common mortgage categories.

Conventional Mortgage

There's a reason it's called conventional. It's the most common type of loan used by 70% of homebuyers. Issued anywhere from 10-to-30-year terms, they feature a fixed interest rate locked in at origination that remains for the entire duration of the loan. Your monthly payments stay the same throughout the loan, no matter how many years it spans.

Conventional Mortgage Guidelines

  • Down payment requirements of 10-to-20% of home value
  • Monthly Private Mortgage Insurance (PMI) of 1-to-2% of the loan is required if you put down less than 20%
  • Closing costs can run you thousands of dollars and must be paid upfront
  • Qualifying credit score of a minimum of 620
  • Income and DTI ratio requirements vary, but can be 36-to-45%
  • You can pay points of 1% of the loan upfront to help reduce interest rates

Adjustable Rate Mortgage (ARM)

A more fluid type of funding, ARM payments fluctuate based on an index that changes with overall market conditions. If the prevailing market rate increases or decreases during an adjustment period, payments adjust accordingly. Most ARMS have provisions in the contract that limit rate increases and cap the amount the rate can increase during an adjustment period. They can also include a lifetime cap, limiting the amount rates can be increased over the term of the loan. As with a conventional fixed-rate loan, the terms of the loan can run anywhere from 5-to-30 years.

The guidelines for qualifying for an ARM vary, but are similar to those of a conventional mortgage. However, they are based heavily on the new "ability to repay" rule that requires lenders to consider more than just the loan's initial interest rate, but also the "fully indexed rate" or the variable rate in determining whether you can afford the loan.

Federal Housing Authority (FHA) Mortgage

A FHA insured loan mortgage is a really a FHA-backed loan guarantee provided to a FHA-approved lender. Having this guarantee reduces the lender's risk, and in turn, they can offer a better financing package, terms, and even better interest rate to qualified applicants who might not be able to obtain a conventional mortgage.

FHA Mortgage Guidelines

  • Minimum down payment as low as 3.5% with at least a 580 credit score
  • Mortgage Insurance Premium (MIP) upfront payment of at least 1.5% of the loan and 0.5% monthly charge for the first five years of the loan or until the loan balance is 78% of the real estate value
  • Reasonable debt-to-monthly-income ratio under 43%
  • Mortgage payment expense-to-monthly-income ratio under 31%
  • Lower closing costs of 2-to-3% of the loan that can be built into loan
  • Overall lower income and credit score requirements
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