So glad to see all of you back because I could really use a break right now. Apparently I’m not good at human acronyms. (And, modesty aside, we know that I’m quite good at most things.) We went through the decisions on types of mortgages this week; it’s a good thing that our loan officer Christy was there or Mallory might well have decided on entirely the wrong kind of mortgage altogether! At least, she might have once we had figured out all of the types of loans there are. I’ll be eternally grateful that Christy had reasons for helping Mallory put each type on the “possible” or “not for us” list. As far as initially understanding what we were looking at, I really spent the week feeling like a fish out of water.
Really humans, it’s so much simpler in my world; find a quiet backwater with enough aquatic plants and swim right in. As long as there aren’t too many Kingfishers or Heron around you’re set. But, back to your world and your acronyms.
I thought Mallory was slowly losing her mind when she began to talk about ARMs. I mean really, we’re buying a house not parts of a human! (Turns out that they’re an Adjustable Rate Mortgage, the interest rate on the loan can change.) Then we had a few bad moments with Fannie Mae and Freddie Mac; I was really puzzled why total strangers would have guidelines we needed to follow to qualify for a mortgage; that’s a fine kettle of fish! Turns out they’re not other humans at all but the common names for the Federal National Mortgage Association (Fannie) and Federal Home Loan Mortgage Corporation (Freddie) which own or guarantee trillions in the US mortgage market. All of those are GSEs (Government Sponsored Enterprises, got that one) are overseen by the FHFA. Then there’s Ginnie Mae, a government organization that supports FHA (Federal Housing Authority), VA (Department of Veterans Affairs) and USDA (United States Department of Agriculture) loans. (No one could explain to me how Mortgage Association ends up as MAE or Mortgage Corporation ends up as MAC; eventually I gave up trying to understand the human logic on those.) SMH, but again, I digress.
What those acronyms boil down for the consumer is a set of qualifications which determine if you are asking for a mortgage that’s a “conforming loan” (Music industry human and goldfish, conforming isn’t our thing. Apparently in this case we did conform which turns out to be as good in the mortgage world as it’s bad in the music world.) The criteria for conforming (sounds really strange, doesn’t it?) are the size of the mortgage you need, the type of property you’re buying, and your back-end debt ratio among other things. Do yourself a favor and let your loan officer help you figure that one out.
Even so, we were faced with choices, so many, many choices. This many choices is not good for my human, she obsesses.Turns out ARMs are more than body parts - they're mortgages too Click To Tweet
Luckily it turns out that one of the important factors in deciding which kind of mortgage to choose is how long you are planning to live in the residence. Glad that Christy got that through Mallory’s head, saved me swimming in a lot of circles. (Remember that? If I swim in circles long enough she’ll just agree with me? Makes her too dizzy.) Even with the help we were in deep water for a while.
Mallory, being in the music industry, which can be diplomatically called chaotic, liked the idea of a fixed rate mortgage. After all, that meant that the interest rate wouldn’t change over the entire life of the loan whether it be 10, 15 or 30 years. Guess it seemed more stable to her. But, I had a feeling that wasn’t going to be her best bet (and seriously, my life span is 30 years, I didn’t really want a mortgage to outlive me!) And, not that I’m cheap, after all those doubloons that I have tucked away will keep us for a while if there is a problem, but the interest rate is higher on the fixed rate mortgage. Over time that can add up. We couldn’t get a VA loan (Adam isn’t in on buying the house.) didn’t want to go the FHA route with the additional requirement of mortgage insurance, and we aren’t looking at rural property so a USDA / RHS didn’t apply. We were either going to do a Fixed Rate, an ARM (couldn’t we call it something else?) or a hybrid that combined a Fixed Rate and ARM. Then Christy asked the right question. “How long are you planning on living in the house?” Well we really are looking at it as a starter house and after about 5 years plan to move on to bigger and better. (I’ve kept the property with the Solarium and indoor pond in the file.) And that gave us all the direction. Because a hybrid Adjustable Rate Mortgage can have a fixed rate for the first few years, and since the interest is cheaper initially than a Fixed Rate, looked like we were going to be swimming in that direction! Pearly
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