You have a wide variety of mortgage products and programs to choose from, when buying a home in Oregon. Today, we will look at a few of the most popular mortgage loan programs used by Oregon home buyers.
An Overview of Oregon Mortgage Loan Programs
To choose the right type of mortgage loan, you must first understand their key features, as well as their pros and cons. This will allow you to select the best financing option for your particular situation.
Let’s start by examining some of the most commonly used Oregon mortgage programs and loan types. They include:
- Federal Housing Administration (FHA)
- Conventional home loans
- 30-year fixed-rate mortgages
- Hybrid ARM loans
Federal Housing Administration (FHA)
The FHA loan program has been helping home buyers since the 1930s, and it’s still going strong today. In fact, it is currently one of the most popular Oregon mortgage programs for first-time home buyers (though it’s not limited to that group).
FHA loans appeal to Oregon home buyers who don’t have a lot of money saved up for a down payment. Through this program, eligible borrowers can purchase a home with a down payment as low as 3.5% of the purchase price or appraised value.
The downside of using this loan program is that you’ll have to pay mortgage insurance, which will increase the size of your monthly payments. There are actually two insurance premiums required for most FHA home buyers. The upfront mortgage insurance premium (MIP) is 1.75% of the borrowed amount. The annual MIP can vary, but for most borrowers, it comes to 0.85% of the borrowed amount.
For some home buyers, the advantages of this Oregon mortgage program outweigh the extra costs. Generally speaking, the qualification criteria for FHA loans are a bit more relaxed than a standard conventional loan. And then there’s the low 3.5% down payment mentioned earlier.
Conventional Mortgage Loan Programs
By definition, a conventional loan is one that is not insured or guaranteed by the federal government. This makes it different from the FHA program mentioned above. These loans are generated in the private sector and insured by private companies (hence the term “private mortgage insurance,” or PMI).
Oregon home buyers who can afford a down payment of 20% usually opt for a conventional home loan. This allows you to avoid the added cost of mortgage insurance. (Generally, any time the loan-to-value ratio rises above 80%, mortgage insurance is required.)
Of course, a 20% down payment is not possible for a lot of folks. And that’s where the PMI industry comes into the picture. Mortgage insurance helps borrowers who might not otherwise qualify for a home loan because they don’t have 20% to put down.
The 30-Year Fixed-Rate Mortgage
This is the “workhorse” of the mortgage industry. It is the most commonly used of all the mortgage loan programs and products available in Oregon.
The two important features are the term (30 years) and the rate structure (fixed). With this mortgage loan option, your interest rate stays the same for the entire term of the loan, even if you keep it for the full 30 years. The monthly payments will stay the same too, and that’s something that appeals to a lot of borrowers.
Payment stability and predictability are the two biggest benefits of this Oregon mortgage loan program. There are no surprises with a 30-year fixed-rate home loan.
Both FHA and conventional loans can have a 30-year fixed-rate term. So you’re not limited to just one or the other.
“Hybrid” ARM Loans (e.g., 5/1 Adjustable Mortgage)
Adjustable-rate mortgage (ARM) loans are another option for Oregon home buyers. But they’re not as popular as their fixed-rate counterparts. In certain situations, an ARM loan could offer money-saving advantages. You just have to understand how they work.
These days, most Oregon ARM loans are actually “hybrid” mortgages. A hybrid loan gets its name because it has features of both a fixed and adjustable loan. The rate remains fixed for a certain period of time, after which it will begin to adjust annually.
The 5/1 ARM is one of the most popular versions of a hybrid loan. With this Oregon mortgage product, the borrower enjoys a fixed (unchanging) interest rate for the first five years. After that initial phase, the mortgage rate will adjust annually (or ever “1” year). That’s where the “5/1” designation comes from. There are other types of ARM loans as well, including the 1-year ARM and the 3/1 hybrid.
Which Oregon Mortgage Option Is Right for You?
These are certainly not the only Oregon mortgage loan programs available today. But they are some of the most popular options used by home buyers in the state. The point of this article is to introduce you to these common loan programs and to encourage additional research.
Sammamish Mortgage has proudly served the Pacific Northwest for more than 20 years. If you’re an Oregon home buyer, and you need help choosing the right kind of home loan, please let us know. We offer a variety of mortgage programs for Oregon borrowers, including all of the ones mentioned in this article.