Credit union seminar explains mortgage options

Fort Belvoir Federal Credit Union took some of the mystery out of the home-buying process during a seminar Nov. 30 at the Community Club.

“It’s important to be informed, to be very informed,” FBFCU mortgage lending manager Stephanie Crabtree said as she broke down the different types of mortgage loans that are available to homebuyers for the more than 30 people who attended the seminar.

Crabtree explained that mortgages fall into two broad categories, fixed-rate and adjustable-rate. In a fixed-rate mortgage the interest rate remains constant throughout the length of the loan, no matter if its 10 or 30 years, she said. The big advantage of a fixed-rate loan is that homebuyers know their monthly principal and interest payments will not change throughout the loan period. In an adjustable rate mortgage, the interest rate varies over the term of the loan. This generally means that payments are lower during the early years of the loan, which may allow homebuyers to qualify for a larger loan amount than they would be eligible for in a fixed-rate mortgage.

Home buyers can also opt to select an Option ARM loan, in which they can choose to make either a specified minimum payment, an interest-only payment, or a 15-year or 30-year fixed rate in a given month, continued Crabtree. She cautioned that the minimum payment in an Option ARM is less than an interest-only payment and can result in negative amortization, while the full payment is the fully amortized share of interest and principal. She also noted that Option ARMs are popular because they are usually offered with a low initial interest rate and minimum payment, which permits borrowers to qualify for a much larger loan than would otherwise be possible.

“These loans are great for people to get in a home they couldn’t quite afford,” she said.

Crabtree also stressed that determining what type of mortgage to get is a personal decision every buyer must make for himself.

“My job is to look out for you as a member,” she added.

Many lenders use the 28/36 guideline when determining how much money potential home owners can borrow, Crabtree continued. The guideline says that a mortgage payment should not amount to more than 28 percent of your monthly gross income – the amount you bring home before taxes, Social Security and other deductions.

With the real estate market in Northern Virginia cooling, now might be the right time to buy a home, Crabtree said.

“The market has flattened out,” she said.

FBCU financial counselor Kelli Jo Anthon said mortgage lenders rely heavily on credit scores when determining eligibility for a home loan. She explained that credit scores are based largely on payment history and length of credit history. She urged attendees to develop a realistic budget, to set financial goals and to use their credit wisely.

Attendee Aretha Craig, an administrative specialist at Army Material Command, said the seminar made her realize that it is important to not jump at the first mortgage loan that is offered.