Purchasing a new home is an exhilarating experience - exciting and mind-boggling all at once. A big piece of the buying puzzle is nailing down which type of home loan is best for you.
There are several home loan options to choose from – each with its own set of variables (length of loan, down payment percentage, interest percentage, steady or fluctuating interest rate, etc.). There are also some really fabulous loan programs for first time home buyers we would like to put on your radar.
Let’s do a little exploring, shall we?
Primary SONYMA Loan Programs
- Achieving the Dream
- Lowest interest rate SONYMA offers, low down payment, 30 year fixed-rate mortgage, no prepayment penalties, rate locks, no points
- Eligibility requirements for buyer including income limits, employment, good credit; requirements for property related to use, location, and sale price v. appraised value.
- There are some other considerations that make this program unique. To see the full run-down visit the SONYMA website.
- Low Interest Rate
- Similar to Achieving the Dream in many ways and also very different. Eligibility and property requirements differ between the two programs.
- Additional special features that can be combined with the 2 main programs:
- Down Payment Assistance– available to all buyers using a SONYMA mortgage!
- Remodel NY– this program allows first time home buyers to borrow additional funds for repairs & remodeling and have it rolled into the monthly mortgage payment. This program can be paired with the Homes for Veterans program.
- Homes for Veterans*** – available to active service members, veterans and their spouses or co-borrowers at any time; eligibility is not contingent on buying a home for the first time. This program offers more favorable terms to those who qualify.
- Graduate to Home Ownership– available to those who have graduated from a higher education program within the last 48 months. There are location requirements that are within the state; NYC is not included as a covered area for this program.
- Neighborhood Revitalization– additional funds available to restore homes in certain areas; there are location requirements for this program—some of which are within the 5 boroughs of NYC.
- Energy Star®– interest rate reduction available for newly constructed homes that are Energy Star® certified (some requirements related to single or two family homes). Go green, woo hoo!
Fixed Rate Mortgages
- A fixed-rate mortgage is a bank loan that has a fixed interest rate for the entire life of the loan.This means that your monthly payments will hold steady at the same price for the life of the loan. The major benefits of a fixed-rate mortgage are protection from inflation and rising mortgage rates andpeace of mind in budgeting a steady payment every month.The flip side of that protection is that mortgage rates can also drop, and in this case, you would keep your higher fixed interest rate. However, if mortgage rates drop really low, you could also refinance your loan.
- Fixed-rate mortgages are frequently offered in 15 and 30 year terms, although 10 and 20 year terms are sometimes available. The benefit of a longer term is lower monthly payments. The benefits of a shorter term are that you will pay less in interest long-termand will be building equity at a faster rate. Loans written for a shorter term usually have lower interest rates.
- Note: the loans offered through SONYMA that we discussed above are written for a 30 year term, but there are no prepayment penalties.
Adjustable Rate Mortgages (ARM)
Adjustable-rate mortgages (ARM) are bank loans that have an interest rate that can change. The change in interest occurs at pre-determined times and is based on an index. This means that your monthly payments may go up or down. ARMs have interest rate adjustment periods that are listed like this #/#; the first figure is the number of years that the interest is fixed and the second is how often the rate will change. Here are some examples:
- 5/1 ARM – The interest rate of the loan is fixed for the first 5 years, after that the rate will be adjusted every year.
- 3/3 ARM – The interest rate of the loan is fixed for the first 3 years, after that rate will be adjusted every 3 years.
The length of the fixed term (the first number) is often 3, 5, 7, or 10 years. During this time the interest rate will not change.
ARMs used to be quite popular, until they greatly contributed to the housing market crash in the mid and late 2000s. ARMs are starting to make a comeback, especially in NYC. They are considered a riskier loan due to the variable interest rate, but can be a good option for those who aren’t planning on living in their new home for very long. This is because ARMs can often offer a lower interest rate than their fixed-rate mortgage cousins.