Types of Home Purchase Loans
PennyMac offers hybrid ARMS - adjustable rate loans that carry a fixed interest rate for 3, 5, 7, or 10 years, then the interest rate changes each year based on a market index. ARMs typically start with lower monthly payments than fixed-rate loans, but once the fixed period ends, the payment will change - either up or down - as the interest rate changes with market conditions.
A hybrid ARM loan is not an interest only loan and does not have a negative amortization option. PennyMac adjustable rate mortgages are fully amortizing loans in which the borrower pays both the principal and interest throughout the life of the loan. The term of the loan is typically 30 years.
After the fixed interest rate period has passed, the length of which varies by hybrid ARM product, the interest rate and payment will adjust annually. So, a 3/1 ARM is fixed for three years and adjusts once per year at the expiration of the fixed period. The loan has caps, or specific limits, that the interest rate cannot exceed when it adjusts. These caps are based on the start rate of the loan, which is the rate the loan had when originated, and the current rate.
Because your payment and interest rate can increase, you should be prepared financially for any possible increase in rates and payment, if you're considering an ARM.
An ARM could make sense for you if you:
- Plan to sell your home or refinance before the end of the initial rate period and therefore aren't concerned about possible rate increases
- Anticipate your income rising enough in the coming years to cover higher mortgage payments if interest rates go up.
- Want the initial lower payment that the ARM offers to qualify for a larger loan, but can afford to pay the fully indexed rate
- Believe that mortgage interest rates may decline in the future and can accept the risk if they don't.
When shopping for a mortgage, a hybrid ARM can be a good choice for some borrowers. There are many types of home loans, so talk to your PennyMac loan officer to see if an adjustable rate loan makes sense for you.
An FHA home loan is a mortgage insured by the Federal Housing Administration that can be a great option for first-time buyers. FHA loans also have less stringent guidelines for income and debt requirements than some other loan products.
- Down payment options as low as 3.5%
- No maximum income/earning limitations
- Insured by the Federal Housing Administration (FHA)
- Insurance from the federal government replaces private mortgage insurance (PMI)
- Maximum loan amounts vary by county
- Flexible income, debt, and credit requirements
With fixed-rate loans, you can rest assured that your monthly payments remain the same for the life of your loan.
- Available in terms from 10 to 30 years.
- Your interest rate will not change for the life of your loan
- Build equity faster with a shorter term loan instead of the traditional 30-year loan.
- Easier for setting your household budget
- Available for home purchase and refinance transactions
The Department of Veteran’s Affairs (VA) helps qualified veterans purchase a home at a competitive interest rate. The VA does not issue loans to veterans. Private lenders like PennyMac issue VA loans and the VA guarantees them.
Who is Eligible?
- Veterans who meet the length of service requirements.
- Servicemembers on active duty who have served a minimum period.
- Certain Reservists and National Guard members.
- Certain surviving spouses of deceased veterans.
Benefits of a VA Loan
- Equal Opportunity for all qualified veterans to obtain a VA loan.
- Veterans receiving VA disability compensation and authorized by VA are exempt from the VA funding fee.
- Reusable; if current loan is paid off and guaranty is released. The homeowner can use the benefit on their new loan after the entitlement is restored and verifiable.
- No down payment (provided the loan amount doesn’t exceed county limits or available entitlement).
- Right to prepay without incurring penalties.
- Loans can be assumed by qualified veterans.
- No monthly mortgage insurance payment.
- VA limits the closing costs lenders can charge veterans.
- Ability to finance the VA funding fee into the loan term.
- Minimum property requirements to ensure property is safe, sanitary and sound.
- Flexible credit and liability guidelines.
- VA programs are less credit score driven than Conventional offered programs.