The type of mortgage you choose will depend on several
factors including how long you plan to live in your new home. Your lender should help you
choose the best loan for your particular circumstances. To give you a head start here are
some variations of the most popular Fixed Rate Mortgage.
A Fixed Rate Mortgage is the choice of
home buyers who wants to know exactly what their payment will be month after month for the
life of the loan. Principle and interest payments remain exactly the same across the life
of the mortgage, which usually is 30 years, but can also be 10, 15, 20, or even 40 years.
However, if you lock into a higher interest rate, the rate will not change, even if
interest rates go down in the future.
Adjustable-rate Mortgage (ARM) is a
mortgage in which the interest rate changes periodically according to a fixed index, such
as the one-year Treasury Bill rate or the cost of funds for an area. The rate can go up
only a certain amount in any given year, usually 1-2 percent. Typically there is an
interest rate cap, which limits how much of a raise you can get over the total life of the
loan. In exchange for this you get an initial rate that is lower than fixed-rate loans.
The lower initial rate makes it easier to qualify, because the initial monthly payments
are smaller. And you can qualify for a larger loan. ARMs are attractive to home buyers who
anticipate an increase in income or know they'll be staying in a house only a few years.
One way of shortening the length of your loan is to take a balloon
mortgage. It works and acts like fixed-rate mortgage for the first several years,
usually five or seven. Then you must either refinance or repay the remaining balance. The
advantage of this type loan is lower initial rate (lower monthly payments). It is
recommended for buyers who plan to sell their house after a few years.
If you don't have the typical 10 to 20 percent down
payment, you may still qualify for a government insured loan backed by the Federal Housing
Administration. FHA Loans are issued by
FHA-approved lenders. The FHA insures its loans so borrowers can get them with only a
three to five percent down payment. Maximum loans are set by the FHA on a
country-by-country basis to allow for differences in area housing prices.
Loans for veterans, also known as VA Mortgages are
guaranteed by the Department of Veterans Affairs for honorably discharged veterans.
Current guidelines allow veterans to borrow up to $184,000 with no down payment.
Many lenders also offer pre-approved mortgages
based on your credit report, income and deposit verifications. Once you gain pre-approval,
you can begin house hunt knowing that you have a mortgage. For final processing, you need
to submit the written sales contract and have the property appraised.
I hope this short course helped you get a little more familiar with
different loan types. If you have any questions please do not hesitate to give me a call
at (630) 810-1900 or page me at (312) 562-6353. Or just
send me an e-mail
and I will get back to you ASAP.