Understanding Your Mortgage Options: Fixed-Rate and Adjustable-Rate Mortgages

As a prospective homebuyer in today’s market, it’s important to have awareness of the different types of mortgages available in order to determine which is right for you. One particularly important distinction to understand is the difference between fixed-rate mortgages and adjustable-rate mortgages (ARMs).

In this article, we’ll explore both of these mortgage options and evaluate the benefits and limitations of each.


Fixed-Rate Mortgages

A fixed-rate mortgage is a loan with an interest rate that remains constant (or fixed) throughout the entire life of the loan. That means whether you’re in the first year or the final year of your mortgage, you’re paying the same percentage in interest on the borrowed money. For this reason, fixed-rate mortgages are more predictable and therefore easier to budget around.

Because your lender is setting the rate for the long term, the trade-off for this predictability is an initial rate that is typically higher than that of an ARM.


  • Consistency: With a fixed-rate mortgage, your interest rate and monthly payment remain the same for the life of the loan, making it easier to anticipate monthly payments years down the road.
  • Protection from volatility: Regardless of market fluctuations, your interest rate will never change, shielding you from potential rate hikes.


  • Higher initial rate: Fixed-rate mortgages generally have higher interest rates initially compared to ARMs, which could affect your purchasing power and the overall cost of your home over time.


Adjustable-Rate Mortgages

Unlike a fixed-rate mortgage, an adjustable-rate mortgage is a loan with an interest rate that adjusts periodically according to market conditions. Generally, it begins with an introductory period (typically a few years) in which the rate is somewhat lower than that of a comparable fixed-rate mortgage. Once the loan reaches its adjustment period, that rate can be adjusted based on the current rate environment, resulting in a potential increase to your rate and therefore a higher monthly mortgage payment. This makes ARMs inherently more risky – especially over the long term.


  • Lower initial rates: ARMs often start with lower interest rates, providing lower initial monthly payments and potentially higher purchasing power.
  • Potential for savings: If interest rates decline, the rate adjustment feature of ARMs may result in lower monthly payments and long-term savings – although it’s important to note that this is not guaranteed.


  • Uncertainty: The main drawback of ARMs is the uncertainty of future interest rate adjustments. Since your rate is not permanently locked in, your monthly payments could increase significantly once adjusted.
  • May carry a prepayment penalty: If you decide you want to pay off your mortgage before the end of the loan term, you may be faced with a prepayment penalty (also known as an early payoff fee).


How to Tell Which Type of Mortgage is Right for You

Fixed-rate mortgages are traditionally more popular with the majority of buyers, especially those who plan to own their home for longer, thanks to their simpler nature and more predictable long term pricing.

However, depending on market conditions, and in the case of buyers looking to own their home for shorter time periods, ARMs can be an attractive alternative.The popularity of ARMs tends to fluctuate alongside changes in interest rates. That’s why, for example, as of April 2023, ARMs accounted for 18.6% of the dollar volume of conventional single-family mortgage originations, quadrupling from their January 2021 low.

Choosing the right mortgage type requires careful consideration of your financial situation and long-term goals. Here are some steps to help you decide:

  • Assess your financial status and risk tolerance to determine if you are comfortable with potential payment changes and if your budget can accommodate fluctuating rates.
  • Evaluate your future plans to estimate how long you plan to own the home and if any major life changes could affect your mortgage.
  • Consult with a loan officer to compare loan types, current rates, and mortgage programs that will help determine the best mortgage option for your needs.

Both options have their strengths and weaknesses, and the choice ultimately depends on your financial situation, risk tolerance, and long-term plans. By consulting with a loan officer and considering your unique circumstances, you can make an informed decision that aligns with your homeownership goals.

Introducing First Home Heroes!

We’re proud to announce the launch of our new First Home Heroes program! We want to recognize the heroes in our communities — including first responders, teachers, and medical professionals — and thank them for everything they have sacrificed to protect us, educate us, and keep us safe and healthy.

This new initiative reduces some of the out-of-pocket closing costs associated with the loan application process to help make homeownership a reality for these everyday heroes!

This reduction is made possible by eliminating certain fees during the lending process. Eligible borrowers will have their application, underwriting, and processing fees credited back to them at time of closing, up to a maximum of $1,585.

This new program builds on our efforts to help make homeownership a reality for all — especially those who most deserve it!

If you are a police officer, firefighter, educator, or medical professional (including nurses, doctors, and other healthcare workers), you may be eligible! If you’re purchasing a new home, First Home Heroes is here for you.

Contact one of our qualified loan officers today to see if you’re eligible

Mortgage-Related Agencies to Know

When buying a home and exploring mortgage options, you’re likely to encounter different agencies you may not be familiar with. What do these mortgage-related agencies do and why are they important?

Fannie Mae and Freddie Mac

Fannie Mae and Freddie Mac are two separate entities that purchase mortgages from banks. Fannie Mae is short for the Federal National Mortgage Association while Freddie Mac is short for the Federal Home Loan Mortgage Corporation. Both Fannie and Freddie’s purpose is essentially to give lenders more capital via the sale of mortgages which, in turn, allows the lenders to continue offering loans to additional borrowers. Fannie is the older organization of the two, having been established in 1938 while Freddie was established in 1970. They have different requirements for the kind of mortgages they purchase, and a key difference between the two is that Fannie Mae generally tends to buy loans from bigger lenders and commercial banks. In contrast, Freddie Mac tends to buy loans from smaller banks.


The Federal Housing Administration, or FHA for short, is a government agency that falls within the Department of Housing and Urban Development, otherwise known as HUD. The FHA was founded as part of the National Housing Act of 1934 introduced by President Franklin D. Roosevelt as part of his famous New Deal. The FHA offers mortgage insurance-backed mortgages to consumers via specific FHA-approved lenders (of which First Home Mortgage is one). FHA loans are often thought of as allowing individuals, particularly those with lower incomes, to obtain homes they would otherwise not be able to afford. FHA loans are known for their 3.5% down payment and lower closing costs and credit requirements.


The United States Department of Agriculture, also known as the USDA, is the federal department tasked with overseeing public policy related to agriculture, food, natural resources, rural development, and more. The USDA offers home loans for properties in eligible rural areas to low- and moderate-income households who meet certain requirements. USDA loans offer 100% financing (no down payment required), but borrowers must meet income eligibility; their income can not exceed 115% of the property area’s median household income. Check out their online eligibility tool to see if a property is USDA eligible.


The United States Department of Veterans Affairs, more commonly known as the VA, is the executive branch department that oversees healthcare and other benefits and services for military veterans. One of the services offered to veterans by the VA is home loans. VA loans are available to eligible current and former service members and surviving spouses. VA loans are known for not requiring a down payment or mortgage insurance, much like USDA loans, but there are no limitations on where a property may be purchased. To determine if your service qualifies you for a VA loan, speak to a Loan Officer and check out the VA’s requirements.

Are you thinking about buying a new home or refinancing your current mortgage? Contact one of our highly knowledgeable Loan Officers today to discuss your financing options.

Buying a Home with Student Debt

With graduations upon us, graduates past and present are reminded of the price of their education. According to the U.S. Federal Reserve, in 2021 44.7 million Americans have student loan debt and in Maryland, the average balance is $36,689. Many potential homebuyers think with a mound of student debt it will be nearly impossible to purchase a new home. Luckily, there are options for those with debt to buy homes. The Maryland Mortgage Program offers the SmartBuy 3.0 program, which helps to qualify homebuyers to pay off student debt during the purchase of their home.

The terms are simple.

You must have minimum existing student debt of $1,000 and the loan must be in your name. The program offers up to 15% of the home purchase price with a maximum of $30,000 in financing to be used towards paying off your debt. The full, outstanding balance of the student loan must be paid off as part of closing; partial loan payment is not permitted. The student loan may be in repayment or deferred status.

Financing for student loan relief will be in the form of a 0% interest, deferred loan with no monthly payments. The loan is forgivable over 5 years; this means if you live in your home for 5 years, your debt is forgiven, and repayment is not needed! If you choose to sell or refinance the property within 5 years, the remainder of the student debt loan will be due upon the sale of your home.

This is a great program to utilize if you are a first-time homebuyer and have accrued student loans over the past few years. Contact one of our loan officers today to see if you qualify!

*Student debt information pulled from Student Loan Hero: https://studentloanhero.com/student-loan-debt-statistics/#:~:text=44.7%20million%20Americans%20with%20student%20loan%20debt

5 Things to Avoid During the Home Loan Process

When you’re pre-qualified for a home loan or beginning the mortgage application process, there are some actions you should avoid taking. These things could potentially delay your mortgage closing or even put you at risk of not being approved at all. Here are some things to avoid before your loan closes.

Avoid Making a Large Purchase

You’ll want to avoid making any large purchases regardless of whether it’s in cash or on credit. A large cash purchase will take away from your savings which you’ll need for a down payment and closing costs and a large credit purchase will increase your debt-to-income ratio and credit utilization which are used to qualify—or disqualify—you for a loan. It’s in your best interests to save large purchases after your mortgage has closed.

Avoid Opening or Closing Lines of Credit

Your credit can be pulled at any point during the mortgage process up through the date of closing. Opening a new line of credit or closing an existing one can negatively impact your score which, in turn, negatively impacts your chances of getting approved. You want your credit to remain as stable as possible when applying for a mortgage, especially if you’ve already been pre-qualified. Pre-qualification doesn’t guarantee approval, and if your credit score changes, there’s a chance you may not be approved. You can continue to use your existing credit cards as normal but be sure to pay these bills on time and not rack up your spending.

Avoid Missing Credit Card, Bill, or Loan Payments

Payment history plays a huge role in determining your credit score which is an important part of determining your eligibility for a loan. It is essential that you pay your bills and other financial obligations on time. Just one late payment can negatively impact your credit score. You should pay especially close attention to your spending during the home loan process to ensure you aren’t spending more than you’re able to pay off in a timely manner.

Avoid Starting a New Job

Situations, where you are suddenly out of work, can be unexpected and out of your control. However, if you’re employed but considering changing fields, seeking employment elsewhere, or becoming self-employed, it’s best that you wait until your mortgage has closed before doing so. Lenders examine your employment history to ensure you’ve had steady employment and income. Unemployment may result in disapproval, particularly when you’re applying on your own rather than jointly, and a change in jobs can require additional documentation which can slow the home loan process down.

Avoid Making Large Deposits

When you’re waiting for mortgage loan approval, you should avoid making any sizable deposits. Payroll deposits and transfers between accounts are generally fine, but other larger deposits (generally over $1,000) must have an explanation. If you do deposit a notable amount of money, your lender will likely ask for an explanation and proof of its origin which can slow down the home loan process or even lead to denial if you aren’t able to properly disclose information about the deposit. In any case, it’s best to hold off on depositing larger amounts until after your loan has closed. If you’ve received or are anticipating receiving a gift to go towards your down payment, it’s best to discuss this with your loan officer at the start of your mortgage application so you can properly document it and avoid any issues in processing your application.

When you work with a knowledgeable mortgage professional, they are able to walk you through the process and make sure you avoid any missteps that could slow down or jeopardize your loan approval. Contact one of our experienced loan officers today to learn more about the home loan process and start your journey!

Does Your Credit Score Spook You?

Your credit score affects more than just your mortgage rate. It also plays a role in how much you will get approved for, what you need to put down, and what you will pay for your private mortgage insurance. While it is not impossible to buy a home with a lower score, you will need to keep in mind how it will affect your qualification. Those with higher scores are more likely to receive a lower rate. Most lenders view a potential home buyer with a high credit score as more dependable and less likely to default on mortgage payments.

It’s best to know and understand your credit score in the months leading up to applying for a mortgage, even if you know your score is in good shape. This will give you time to either improve your credit or ensure that you keep it as high as possible before you apply. Here is an estimated breakdown of how credit scores are judged:

  • Excellent = 720 and above
  • Good = 690 – 719
  • Fair = 630 – 689
  • Poor = 629 and below

Taking steps to build your credit can help put you in the best possible position when you apply for a mortgage. Some of the best ways to build your credit are:

  • Make your rent, credit card, and any loan payments on time
  • Check for errors on your credit report and try to resolve them
  • Keep your credit utilization below 30%
  • Work with a credit counselor or loan officer

If you are not able to improve your credit score in time to apply for a mortgage, there are loan options you may still qualify for. For example, FHA loans are popular among first-time homebuyers with less than excellent credit scores. When you begin the mortgage process, your Loan Officer will order a credit report and will help you explore all your options to find the best fit for you! Contact one of our highly trained Loan Officers to learn more!

Types of Mortgage Loans

There are many mortgage loan types. The one that is best for you is dependent on your particular situation and needs. It’s important to understand what options are available and what makes each one unique. Here are some of the primary mortgage loan types.

Conventional Home Loans

Conventional home loans are what most often come to mind when we think of mortgages. They are loans that either needs no mortgage insurance or are be insured by a private company. Conventional loans can either be conforming or non-conforming. Conforming loans meet the guidelines set by Fannie Mae or Freddie Mac, the government-sponsored entities that back most mortgage loans. The most common type of non-conforming conventional home loan is a jumbo loan which is used when the loan amount is higher than the loan limit set by Fannie Mae and Freddie Mac. Jumbo loans allow a borrower to purchase a higher-priced home.

Conventional loans can either have a fixed or adjustable rate. As the names suggest, fixed-rate loans have interest rates that stay the same for the whole life of your loan while adjustable-rate mortgages may allow you to get a low introductory interest rate that may increase over time. Fixed-rate loans are generally best for buyers planning to stay in their homes long-term.  An adjustable-rate may be a good option if you’re looking to keep your loan for a shorter period.

Government Loans

The U.S. government is not a mortgage lender but does offer certain programs through various agencies in order to better serve borrowers in unique circumstances. These programs are available only through approved lenders such as First Home Mortgage.

Some of the most common government loans include FHA, VA, and USDA loans. The Federal Housing Administration insures FHA loans which are geared toward borrowers with limited savings and lower incomes. The Department of Veterans Affairs insures VA loans that allow service members and their spouses to purchase a home with little to no down payment. The U.S. Department of Agriculture insures USDA loans to home buyers with low to moderate-income who are buying in certain designated rural areas.

Renovation Loans

Renovation loans are just that, loans to fund the cost of renovating your home. These loans are available to exist homeowners as well as to homebuyers who have found a home to purchase that needs fixing up. Common repairs and remodels covered by renovation loans include garages, driveways, roofs and gutters, room additions, plumbing and electrical, basement finishing, landscaping and fencing, doors, windows, and decks, patios, and porches.

Two of the most common renovation loans are FHA 203(k) and FNMA HomeStyle loans. The Federal Housing Administration offers FHA 203(k) loans which cover the purchase of a primary residence and the repairs in one mortgage. There are two types of FHA 203(k) loans: Standard and Streamline. Standard FHA 203(k) loans give borrowers the flexibility to finance major rehabilitations that cost a minimum of $5,000, while the Streamline FHA 203(k) provides financing for minor repairs and renovations up to $35,000. An FNMA HomeStyle loan allows the purchase and renovation of either a primary residence, second home, or investment property in a single mortgage up to the lending limit with a minimum down payment of 5%.

The best way to determine the mortgage type that’s best for you is by talking to a knowledgeable professional. Contact one of our experienced loan officers today to learn more about loan types and find the option that’s right for you!

Home Loan Milestones

Buying a home may seem like a daunting process but being prepared can ease your mind. It is important to understand what to expect when preparing to buy a home, and what to expect during the home buying process. Below we’ve provided a short outline of the five main home loan milestones of the home buying process.

Home Loan Milestone #1: Pre-Qualification

You’re ready to buy a home, congratulations! The very first step to take if you are ready to start your new home search is to get pre-qualified. This is a no-cost, no-commitment, 10-20 minute analysis that will give you a great starting point for your new home loan. Especially during times of social distancing, we’ve made this process even easier by offering pre-qualification applications to be taken over the phone or by completing an online form. This will allow us to determine an estimate of your maximum monthly mortgage payment and how much you can borrow. Pre-qualifying for a loan before you go home shopping helps you set a budget and strengthen your negotiating position when making an offer.

Home Loan Milestone #2: Application

Once you have found a home, you will make an offer to buy it from the seller. A real estate professional will conduct negotiations and a contract will be submitted to purchase, accompanied by the pre-qualification letter. Once your offer is accepted, you will receive your initial disclosure package and you will begin the application process. You will most likely need to provide your loan officer and processor with updated income and asset documentation, such as pay stubs and bank statements. To ensure your loan stays on track, you’ll want to have your docs completed quickly and thoroughly.

Home Loan Milestone #3: Processing

In this step of the process, your appraisal and title work will be ordered. Once all necessary documentation is collected, the processor will review everything for completion and accuracy. He/she will verify information on the title work, appraisal, credit report, and any additional docs needed. Once the processor has completely reviewed the full application package, he/she will pass it on to the underwriter. Your loan officer will keep you informed, answer any questions and navigate you through every step of the way.

Home Loan Milestone #4: Underwriting

Once your loan gets to this milestone, the underwriter will review the entire loan package to determine if your loan meets the guidelines for approval. Your underwriter will review your disclosures, credit, asset documentation, employment, appraisal, and additional documents along with the loan program’s guidelines and regulations. Once conditions have been met and any contingencies on the loan have been cleared, the underwriter will give the clear to close/final approval and the loan is sent to closing.

Home Loan Milestone #5: Closing

You are now in the final home loan milestone, closing! This is the best part! A date, time, and location should have already been confirmed for closing. At least 3 days prior to closing, you will receive your closing disclosure (CD). This document will show you your closing costs, terms of the loan, and how much money you need to bring to settlement. Closing may look a bit different due to COVID-19 restrictions. You may be asked to wear masks, wait in your car, or sign documents without other parties present. Once documents are signed, funds will be distributed, and ownership of the property will transfer from the current owners to you. The house is finally yours!

It may seem like a long process, but we strive to make it as seamless as possible. If you are ready to start your home buying process, contact one of our loan officers today!

Things to Consider Before Buying a Vacation Home

Vacation homes can be a great investment, whether you plan to use them to rent out, for after retirement, or simply to stay in on vacations. Buying a second home is a big decision, and it’s imperative you take the time to consider the various financial and lifestyle implications associated with this big purchase. Here are a few questions you should be asking yourself when contemplating buying a vacation property.

Can I Afford It?

Whether or not you can afford a vacation home should be your top concern before seriously pursuing the idea. Think about the state of your finances. Are you saving enough for retirement and any emergencies? Do you have enough for a down payment? Can you still meet your other important long-term financial goals? What is your debt-to-income ratio? A debt-to-income ratio is calculated by adding up all your monthly bills and dividing them by your monthly pre-tax income. The lower your debt-to-income ratio, the more income you have to save and spend on other things and the more likely a lender is to let you borrow money. When you look at all your outstanding debts—the rent or mortgage for your primary residence, student loans, any alimony or child support, and other recurring payments—do you have enough to live on if you add in a new vacation home mortgage? If your debt-to-income ratio is on the higher side, it’s probably not the best time to buy another home.

Beyond the mortgage, it’s important to take into account the other expenses you would incur. Even if you’re only staying in the home part-time, you’ll still have things like utilities, possible HOA dues, insurance premiums, maintenance fees, taxes, and other bills and expenses to take care of all year long. Can you afford to pay these bills for a vacation home on top of your primary residence?

Is This the Right Location?

When it comes to a vacation home, you could pick just about anywhere in the country or even the world to buy. Make sure wherever you pick is somewhere you really like and either see yourself visiting often or believe will have lots of demand for renters. Consider visiting and renting in your desired location a few times in order to better gauge whether it’s the right place to put down roots more permanently. You should also think about localized taxes and ordinances that may be different than what you’re used to at your primary residence.

Why Do I Want to Buy a Vacation Home?

Sure, we’d all like to have a vacation home, but it’s important to ask yourself why exactly you want one. Is it somewhere you’ll visit regularly? Will you be saving money by owning instead of renting when vacationing? Are you buying it as an investment property to rent out? Is this where you’d like to retire someday? Will you get enough use out of it now or in the future to make it a worthwhile purchase? Having another home may seem ideal in theory, but it’s not always the most practical decision depending on your lifestyle and needs. It’s important to weigh the pros and cons of vacation home ownership before making a decision.

Is This the Best Time to Buy?

Avoid buying a home during peak tourist season, be it winter for mountain property or summer for something by the water. Current owners are likely looking to recoup their investment during the busy season and are less likely to put homes on the market. Wait for the final weeks of peak tourism or later. For properties with summer as their high season, the time between Labor Day and Thanksgiving is perfect to search for your dream property as you take ownership early enough to get an idea of what future summers might be like and still make repairs and do maintenance work before winter sets in. For winter vacation homes, aim to search in the spring (but don’t wait too long to start looking, as some particularly remote properties may get boarded up for the summer months).

If you’re thinking about buying a vacation home, reach out to one of our experienced loan officers today to explore your financing options!

5 Tips for Building Equity in Your Home

Equity can be defined as the difference between the current market value of a property and the principal balance of all outstanding loans. This is calculated by subtracting your mortgage balance from the market value of your home. Building home equity is important because it can be converted into cash if need be through a home equity loan or a line of credit or cash. In order to increase your home’s equity, you must increase your home’s value, lower your mortgage debt, or both. Here are 5 methods for doing just that.

Make a Big Down Payment

Down payments provide instant equity, and the bigger the down payment, the more equity you have to start with. As an added bonus, if you’re able to put down at least 20%, you can avoid having to pay private mortgage insurance, also known as PMI. However, it’s important to assess your finances and financial goals when determining the ideal amount of money to put down for you and your situation.

Pay More on Your Mortgage

Your mortgage payments are made to cover both principal and interest. Most mortgages are on an amortization schedule where you make payments of equal installments over a specified period of time until your loan is paid off. Generally, a larger portion of your payment goes towards interest in the beginning and more goes towards principal over time. If you can afford to, consider paying more than you have to. In doing so, you decrease your outstanding loan balance faster, thereby increasing your equity. You’ll want to make sure the extra money you pay goes to cover the principal, not interest. There are a few ways to pay extra money on your mortgage, including adding a fixed sum to your payments each month, switching to a biweekly mortgage schedule, scheduling extra payments at regular intervals, and using extra money such as tax refunds and tax gifts.

Refinance to a Shorter-Term Loan

Choosing or refinancing to a shorter loan term can help boost your equity. Typically, with 15-year mortgages, you not only get a lower interest rate but a larger portion of your payments go towards principal rather than interest. This increases the amount of equity you build each month compared to that of a 30-year mortgage. It’s important to note that payments are also higher with a shorter-term loan, so you should consider whether there’s room in your budget for larger payments.

Improve the Property

Remodeling and home improvement projects can boost your equity. According to Remodeling Magazine, the average payback on the most common upgrades is $0.64 for each dollar spent or a 64% return on investment. Smaller projects, such as garage door replacements, do a particularly good job of increasing your equity, especially when you pay with cash rather than through a loan. Unless you’re remodeling with the intent of selling, it’s important to think about how much the improvement will enhance your living experience within the home. You should consult with a real estate agent or another home professional to determine which renovations will net you the highest return.

Wait for Your Home’s Value to Rise

If you’re not in a rush to build equity, one thing you can do is simply be patient and wait. The housing market fluctuates and therefore so does your home’s value. Local market conditions will naturally impact the value of your home; when home prices increase and demand goes up in your area, your home value will rise with it. Conversely, if the market slows, your value may go down and you may lose some equity with it. These market changes are largely out of your control, but they’re worth keeping in mind. If you’re curious, you can consult an appraiser or use an online estimating tool to get an idea of your home’s current value at any given time.

If you are considering purchasing or refinancing, please contact one of our experienced loan officers today to get you started!



Source: https://www.bankrate.com/home-equity/how-to-build-equity-in-your-home/


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