Choosing a Mortgage Program

Choosing a Mortgage Program UW Credit Union

One of the most important steps in the home-buying process is
finding a mortgage that works for your situation. When searching for a mortgage, there are five questions to consider that can help guide you to the ideal mortgage program for you:

  1. What can you afford to pay each month based on your current income?
  2. Do you expect your income to rise, fall or stay the same over time?
  3. Do you plan to stay in the house long-term or move in a few years?
  4. Do you have a high tolerance for risk?
  5. Do you expect interest rates to rise, fall or stay about the same over time?Here is an overview of mortgage programs that many lenders commonly offer:

Fixed Rate Mortgages

Fixed rate mortgages are one of the most popular mortgage programs available. Both the interest rate and the monthly payments (for principal and interest) stay the same during the life of the loan so the monthly payments don’t change.

Consider a fixed rate mortgage if you:

  • Are planning to stay in your home for a long time
  • Prefer knowing that your interest rate and payment will not change

Adjustable Rate Mortgages

Adjustable rate mortgages, also known as variable rate loans, usually offer a lower initial interest rate, but the interest rate fluctuates over the life of the loan based on market conditions. If interest rates rise, generally so do your loan payments. If interest rates fall, your monthly payments may be lowered.

Consider an adjustable rate mortgage if you:

  • Are planning to be in your home for less than five years
  • Want the lowest interest rate possible and are willing to tolerate some risk to achieve it

Jumbo Loans

Some institutions offer fixed rate and adjustable rate mortgages for large loan amounts exceeding federal loan limits.

Consider a jumbo loan if you:

  • Are financially prepared for larger monthly mortgage payments
  • Are willing to take on a large amount of debt

Balloon Mortgages

Balloon mortgages offer lower monthly payments for a set amount of time. After this time elapses, the balance is due in one lump sum, at which time you could consider refinancing, which would increase payments.

Consider a balloon mortgage if you:

  • Are buying a home with the expectation of an improvement in your financial situation
  • Want to stay in your current home but are experiencing a temporary financial squeeze

FHA-insured Mortgages

FHA-insured mortgages are fixed rate and provide low down payment financing. FHA loans are guaranteed by the Federal Housing Administration (FHA), which is a division of the Department of Housing and Urban Development (HUD).

Consider an FHA mortgage if you:

  • Are purchasing an owner-occupied property (as opposed to an investment property)
  • Are just starting out or have had credit challenges in the past
  • Are trying to finance a new home with as little down payment as possible
  • Prefer knowing that your interest rate and payment will not change

WHEDA Fannie Mae Advantage

Available starting March 1, 2010, the WHEDA Fannie Mae Advantage mortgage offers up to 100% financing on 30-year fixed rate loans for first-time homebuyers, and borrowers will not be required to purchase private mortgage insurance. The program includes guidelines for purchase price and borrower income limits, which are set per county.

VA Home Loans

VA (Veterans Administration) loans are available to those who have served in the armed forces for a required period of time. The federal government guarantees a portion of the principal, and they can be obtained with little or no down payment.

Rural Housing Loans

The Rural Housing Service (RHS), an agency within the United States Department of Agriculture (USDA), provides mortgages to qualified borrowers who are unable to obtain loans elsewhere. These loans are primarily used to help low-income individuals or households purchase homes in rural areas.

About UW Credit Union

This information is provided to you courtesy of UW Credit Union, based in Madison, WI. UW Credit Union is a leading provider of home loans in Dane County and throughout Wisconsin.

For more information about the home loan process, please contact a UW Credit Union Home Loan Specialist at 800.533.6773, ext. 2810, or vist