Home buying: what types of mortgages are available to New Yorkers

So you're looking for a home in New York. You know everything you want from location to number of bedrooms. But do you know what types of home loans are available for buying a home. Like the New York real estate market itself, mortgages are tricky here. There are many variables that can help you determine the best type of mortgage for your purchase. Edition Street easy talked about mortgage options.

Types of home loans for the first home purchase

Buying a home for the first time in New York can be a daunting task. Prices are higher here than in other parts of the county, and it may seem impossible to save on the down payment. In addition, the process can be difficult to navigate. But there are several types of home loans specifically designed to help newbies.

Federal loan options

The U.S. Department of Housing and Urban Development provides FHA Loan and V.A. Loan.

• FHA Loans: The Federal Housing Authority loan is a government-backed mortgage loan that allows borrowers to invest as little as 3,5%. But they tend to have stricter lending rules. “Lenders get insurance coverage,” said Melissa Cohn, executive mortgage banker at William Raveis Mortgage. “But they do require mortgage insurance. This cost can be paid in advance or financed in the amount of the loan, which is more common. "
• V.A. Loan: The Department of Veterans Affairs offers 100% funding to eligible military personnel and veterans. The downside is that they tend to be limited to loan amounts. But some lenders give up to $ 1,5 million. It is important to note that large mortgages, interest-only mortgages and one-time mortgages are not insured by the state.

New York City and State Loans

In addition to federal lending programs, there are several city and state homebuyer programs in New York City.

• HPD's HomeFirst: buyers can receive up to $ 40 towards their down payment or loan closing costs through the Department of Housing Conservation and Development.
• Achieving the Dream: low-income home buyers can get a small down payment and a reduced interest rate.
• Low Interest Rate Program: the standard mortgage program of the New York State Mortgage Agency (SONYMA) will pay up to 3% down payment.
• SONYMA's Conventional Plus Program: The new mortgage program combines a 30-year fixed rate mortgage with SONYMA's down payment assistance.
• Homes for Veterans Program: veterans and US military personnel can apply to participate in any SONYMA program on better terms.
• RemodelNY: this add-on program allows first-time buyers to purchase a home and pay for renovations with a single low, fixed rate mortgage.
• Down Payment Assistance Loan (DPAL): another program that can give you up to $ 15 in your down payment or mortgage insurance premiums.
• Give Us Credit: the pilot program flexibly adjusts eligibility requirements for first-time buyers. This helps those who rely on unconventional savings and sources of income.
• The Conventional Plus Program: offers assistance in paying the down payment to those with certain income restrictions.

Fixed rate mortgage

When it comes to types of home loans, a fixed rate mortgage is a mortgage in which the interest rate remains fixed for the duration of the loan. They can be of any length, but are usually offered for 15, 20, 25 and 30 years.

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pros

Since the interest rate is fixed for the entire term of the mortgage, the monthly payments will remain the same every month and will not change over the life of the loan. “This ensures predictability and stability in the housing budget,” says Alan Rosenbaum, CEO and founder of GuardHill Financial Corp.

Cons

If you pay off the loan over a longer period — for example, the standard 30 years — your monthly payment may be less. But you can also pay more interest over the life of the loan. A short-term loan, for example fixed for 15 years, usually has lower interest rates. This allows you to pay less interest over the life of the loan. But the monthly payments are higher because the loan principal is paid off in fewer years.

Adjustable rate mortgages

For adjustable rate mortgages (ARM), the interest rate remains set for a predetermined period and then the rate is adjusted. The different types of ARM depend on the number of years that the interest rate remains fixed.

pros

“The advantage of these mortgages is that you can often get a rate lower than the initial fixed rate mortgage, which lowers your payments,” says Kohn.

Cons

The downside is that the rate may rise at the end of the adjustment, and thus the payment may increase. “Rates and payouts can go up after adjustments, which can shake your budget,” says Rosenbaum. "Each ARM may have different constraints, margins and indices, which can make it difficult to understand what your bet might look like."

Ordinary mortgage

A conventional mortgage is available through a private lender. They are also available through two government-sponsored organizations: Fannie Mae (Federal National Mortgage Association or FNMA) and Freddie Mac (Federal Home Credit Corporation or FHLMC). These loans must meet certain standards of the borrower and lender. Conventional loans can be either conformal or large:

• Conformal loan. Mortgage with a maximum loan amount of $ 548 for 250.
• Large loan (jumbo): it is any mortgage loan of $ 822 or more.

pros

Home buyers tend to receive lower interest rates on conventional mortgages. And the rates are based on credit ratings, so you can get a very favorable rate if you have a high score. Plus, you can get fixed interest rates and higher loan limits.

Cons

If you have a lower credit rating, it will be more difficult to get a mortgage. In addition, conventional mortgages have no government insurance, guarantee or support.

Large loan (jumbo)

This is a type of regular large loan only. New agreed and large mortgage limits were announced only in November 2020. In high cost counties such as New York, the loan must be more than $ 822 to be considered a large loan.

pros

“The large loan provides financing options for borrowers purchasing more expensive real estate,” says Rosenbaum.

Cons

Eligibility requirements may be more stringent. To qualify for a large loan, you must meet the following criteria:

• Low debt-to-income ratio (DTI)
• High down payment
• High credit rating
• High reserves and assets

Mortgage with state insurance

Government insured mortgages are types of home loans that are guaranteed by the federal government. This includes FHA and B.A. loans (mentioned above) and USDA loans (loans from the US Department of Agriculture are for borrowers from rural or sparsely populated areas).

pros

You can buy a house by paying as little as 3% down payment and the requirements for obtaining are not too high.

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Cons

There are loan limits, meaning you cannot borrow as much as you could from a private lender. You will have to pay higher mortgage insurance for the life of the loan, unless you can put in more money. Plus, there may be restrictions. For example, you cannot rent it out.

Payment of only interest

This is an adjustable rate mortgage where you only pay interest over a period of time. For example, you might get an ARM that pays only interest for seven years and then increases payments over the remaining term of the loan.

pros

The advantage of these types of home loans is significantly lower payments during the period of interest only. You can also defer larger payments for the future.

Cons

The downside is that payouts increase dramatically.

Ball mortgage

This is a type of home loan for which you make standard monthly payments over a period of time. After that, you must make a one-time large payment to cover the balance of the loan. Repayments are based on 20 to 30 years of repayment, but the actual loan term is 5 to 10 years.

pros

Mortgages usually have lower interest rates than fixed or ARM. This helps those planning to relocate in a few years, because you can enjoy the low rates before the big payment is due.

Cons

You will have to pay a large lump sum in just a few years, and if you find yourself in a situation where you cannot pay it can be a daunting task. Plus, refinancing can be difficult, especially if the value of your home has declined.