New Home Tips, Trends, and Ideas - Raleigh Custom Home Builders

What is an ARM? The Language of Adjustable Rate Mortgages

Posted by Penn Hull on Tue, Nov 09, 2010 @ 06:11 AM

Ask the Financing Expert Series

The Language of Financing: ARM (Adjustable Rate Mortgage) Definitions and Terms

Ask the Financing Expert Brian LaibleBrian Liable, Sr Loan Officer, and Primary Residential Mortgage, answers your home financing questions.

Today's question:

"What is an ARM, and what do all those terms mean?"

The Language of Financing - ARMs

Brian answers:


"When you meet with a lender to apply for financing, you may feel as if you are in a foreign country when the loan officer begins to talk about points, Regulation Z margins, PMI, and ARMs.

You are not alone if you feel left behind by loan terminology. Like many professionals, lenders use a highly specialized language. Don't hesitate to ask for a translation! This is especially true if you are investigating some of the more complicated loans with rates that can be adjusted periodically.

What is an ARM? Financing QuestionsAs you consider the various loan options, find out what the interest rate will be and at what point the lender will commit to that rate.

If the loan has an adjustable rate, be sure that you understand how often the rate will adjust, and by how much your payments may go up.

Find out if the loan can be assumed by a future buyer. The lender isn't trying to confuse you. The mortgage process is complicated, so just keep asking questions until you understand.

ARMs :  Adjustable Rate Mortgages

These loans will not have the same monthly payment for the life of the loan.

Start rate:

This is the starting interest rate of the variable mortgage. It is often referred to as the teaser rate, since it is lower than the fully indexed rate. This is often done to induce people into the loan since the start rate is low.

Adjustment Period :

This is the length of time for which the interest rate is fixed. Therefore if the adjustment period is six months, then the interest rate will remain fixed for six months, after which time it will adjust.

Adjustment Cap:

This is the maximum the interest rate can adjust up or down each adjustment period.

Lifetime Cap:

The maximum interest rate over the life of the loan.

Index:

This is the variable that the rate is calculated from. This is normally a number that is published in business newspapers. Well know indices include :

  1.  
    1. Prime rate: the rate offered to the bank's best customers.
    2. Treasury bill rate: Short term debt instruments used by the U.S. Government to finance their debt. Commonly called T-bills they come in denominations of 3 months, 6 months and 1 year.
    3. Libor: London Interbank Offered Rates. Average London Eurodollar rates.
    4. 6 month CD rate the average rate that you get when you invest in a 6 month CD.
    5. 11th District Cost of Funds: Rate determined by averaging the cost of money to banks that make the San Francisco 11th district of the Federal Reserve.

Margin:

This is a fixed number added to the index to compute the actual rate.

Conversion Options:

Some variable loans come with options to convert them to a fixed loan based on a pre-determined formula, during a given time period. For example the 1-year tbill adjustable may be converted to a fixed during the first five years on the adjustment date. The means that you could convert during the 13th, 25th, 37th, 49th and 61st months of the loan.

Call Brian at 919-256-3133 for more information about ARM (Adjustable Rate Mortgages)." 

Ask the Financing Expert Series

Stanton Homes continues to offer the information you're looking for.  Other popular questions include:

Construction Loans - What Kind of Down Payment is Required?

How Do Construction Loans Work?

Check back for more construction home loan and other financing questions from our new "Ask the Expert" column, featuring Brian Laible, Senior Loan Officer for Primary Residential Mortgage. 

Send us YOUR questions to "Ask Brian", and look to Stanton Homes for the answers you need.

sBrian Laible - Ask Brian!

Sr. Loan Officer, Primary Residential Mortgage

701 Exposition Place, Suite 118, Raleigh, North Carolina 27615

919.256.3133

*Stanton Homes is not a lender, not offering lending advice, and is not affiliated with Primary Residential Mortgage.  For answers to lending questions, contact a trusted lender.

Tags: adjustable rate mortgage, construction loans, ask brian, ask the financing expert series

Construction Loans: What Kind of Down Payment is Needed?

Posted by Penny Hull on Thu, Oct 28, 2010 @ 11:10 AM

Ask the Financing Expert Series

Construction Loan Down Payments - How Do Down Payments Work? 

Ask the Financing Expert Brian LaibleBrian Liable, Sr Loan Officer, and Primary Residential Mortgage, answers your home financing questions.

"Custom" doesn't have to mean "expensive" when it comes to building a new home. 

From the construction loan to permanent financing, local experts can tell you everything you need to know - before you sign the bottom line. 

Custom home builders like Stanton Homes can help you understand what you're getting for every dollar you spend.

Get frank answers to blunt questions like these, in our “Ask the Expert” column. Today's question:

 

"What Is a Typical Construction Loan Down Payment or Deposit?”

Brian answers:

What kind of down payment is required to build a custom home?  I hear this question quite often, and here’s how I answer it:

Get Pre-qualified

Before shopping for a builder, get pre-qualified for your mortgage.   A pre-qualification will give a good idea of how much you can spend on your new custom home.

What Kind of Down Payment is Needed?

This is a tough question, because builders’ requirements can differ.  A general guideline for your equity investment is 5-20% of the cost of the home.  Many of the major lenders and builders want to see “skin in the game”.  But with the right combination of lender and builder, the out of pocket expenses can be greatly reduced.

Along with your investment into the equity of the home, you will incur closing costs for the permanent and construction loan closing – typically in the range of 2.5%-3% of the loan amount.

 Is it possible to Lower the Financing Cost of your New Custom Home?

One way to save money building your new home is to put the construction loan in your name instead of the builder’s name.  With this process, you will be required to make monthly payments (interest only) on the construction loan, for money that you have used.  That means the builder received draws as each stage of the home is completed and inspected.  There may be an additional upside for the homebuyer, as interest expenses can be tax write offs.

Are Lower Down Payment Options available?

At our company, we have worked out a new construction/permanent financing arrangement where buyers are able to put as little as 25% of the lot price as a down payment, plus $5000 for project start up, as opposed to 5% - 20% of the entire project cost.

What is a Typical Deposit to a Custom Home Builder? 

I work with a lot of great builders and each has their own minimum deposit requirement.  Stanton Homes, a custom home builder in Raleigh NC, only requires a $5000 deposit on most new custom homes. 

Ask your builder about down payment and investment requirements before you start your home building process.

Options are also available to recoup some of your new home investment.  Ask me how.

Call Brian at 919-256-3133 for more details.

Ask the Financing Expert Series

Stanton Homes continues to offer the information you're looking for.  Check back for more construction home loan and other financing questions from our new "Ask the Expert" column, where Brian Laible, Senior Loan Officer for Primary Residential Mortgage, will answer financial questions like "What type of down payment is required?" and "Are one time close products available?"  

Send us YOUR questions to "Ask Brian", and look to Stanton Homes for the answers you need.

sBrian Laible - Ask Brian!

Sr. Loan Officer, Primary Residential Mortgage

701 Exposition Place, Suite 118, Raleigh, North Carolina 27615

919.256.3133

*Stanton Homes is not a lender, not offering lending advice, and is not affiliated with Primary Residential Mortgage.  For answers to lending questions, contact a trusted lender.

Tags: construction loans, ask brian, ask the financing expert series, construction to permanent

Construction Loans | How Do Construction Loans Work?

Posted by Penn Hull on Wed, Oct 20, 2010 @ 10:10 AM

How Do Construction Loans work?

Ask the Financing Expert Series

Comparing Construction Loans with Permanent FinancingConstruction Home Loans | Custom Home Builders | How Construction Home Loans Work

 

Brian Liable, Sr Loan Officer, and Primary Residential Mortgage, answers your home financing questions.

Today's question:

"How do Construction Loans Work?"

 

 

Construction loans are short term loans with interest-only payments that are intended to last the length of your new home construction - up to one year.

Your construction loan can be used to purchase a lot and pay for the home's construction, and you will only have to pay interest in segments.

The construction loan will be accessed gradually by the custom home builder, who can only take out a certain amount of money at a time, as specific parts of the home are completed.  

The construction lender reviews the progress of the home to determine how much of the loan they are willing to give the builder.

Construction Loans:  What About when the Home is Complete? 

Once your custom homebuilder has completed your home, you will need to get permanent financing, with terms up to thirty years. 

Typical permanent financing options include:

  • Conventional financing (80% of the appraised value or less)
  • FHA which requires only 3.5% deposit based on the sales price
  • USDA and VA which allow for 100% financing of the sales price. 

All of these types of financing options can be used to pay off construction loans. 

Construction Loans:  Is Construction Financing Available?

Yes, a variety of construction loans are available, with many different options and structures.  Call Brian at 919-256-3133 for more details.

Ask the Financing Expert Series

Stanton Homes continues to offer the information you're looking for.  Check back for more construction home loan and other financing questions from our new "Ask the Expert" column, where Brian Laible, Senior Loan Officer for Primary Residential Mortgage, will answer financial questions like "What type of down payment is required?" and "Are one time close products available?"  

Send us YOUR questions to "Ask Brian", and look to Stanton Homes for the answers you need.

sBrian Laible - Ask Brian!

Sr. Loan Officer, Primary Residential Mortgage

701 Exposition Place, Suite 118, Raleigh, North Carolina 27615

919.256.3133

*Stanton Homes is not a lender, not offering lending advice, and is not affiliated with Primary Residential Mortgage.  For answers to lending questions, contact a trusted lender.

Tags: construction loans, ask brian, ask the financing expert series, construction to permanent