Shorter Term? Save Money and Easier Loan Qualification.

In a market where interest rates are increasing and underwriting guidelines appear to get tighter the experience of your mortgage professional matters.  Simple adjustments and realignments can make a huge difference.  Many buyers think a 15-year mortgage or 30-year mortgage are all that is available. We are often asked to review files that could not get AUS approval from Fannie Mae’s DU or Freddie Mac’s LP. Other lenders are unable to approve the borrower’s loan.  The FDM mortgage professional steps and with a realignment of the loan we can get a AUS approval and save the borrowers money. Basically….. Save the Loan and Save Money!   
20-Year Mortgage ? 25-Year Mortgage? Just Right? 
A 20- or 25-year mortgage sits between the 30-year’s low payment and the 15-year’s fast payoff, and the savings are significant. On a $400,000 loan at 7.25%, a 30-year costs about $582,000 in interest over its life. A 25-year cuts that to about $467,000, and a 20-year to about $359,000, saving more than $220,000. Borrowers also build equity much faster, which is valuable in a market where prices have flattened and some areas are softening. In this rate environment, a shorter term can also be a planned path to owning the home outright before retirement.
Having trouble qualifying? A shorter term can help the overall approval in several ways:
DU scores a shorter term as lower risk. Fannie Mae’s guide says DU treats loan term as a risk factor and that loans paid off over shorter terms “generally tend to perform better than mortgages with longer amortization periods.” For a file near the line between Approve and Refer, especially one with higher LTV or thinner reserves, a shorter term can be a positive.
Mortgage insurance coverage drops at 20 years or less. Fannie’s standard MI coverage on fixed-rate loans with terms of 20 years or less is 25% instead of 30% at 90.01–95% LTV, 12% instead of 25% at 85.01–90%, and 6% instead of 12% at 80.01–85%. Lower coverage usually means a lower monthly MI premium, which offsets part of the higher principal and interest. This applies to a 20-year, not a 25-year.
They help with refinances. A borrower 5 to 10 years into a 30-year loan can refinance into a 20- or 25-year without restarting the clock. Paired with a lower rate, the payment may barely change while years come off the loan.
Understanding how to apply all the unique features of the loan programs available in this market makes a difference. Do not get stuck on 15-year or 30-years, sometimes a 20-year or 25-year loan is just right.