Before you start house hunting, it’s important to understand your loan options. Sit down with a lender to ask any questions about the following loan types.
This mortgage is a contract between the lender and the borrower, at the lender’s risk. If the borrower fails to make payments, the lender can repossess your home. This mortgage is not insured by any federally insured program. However, it may be insured by a private mortgage insurance program. Conventional mortgages typically require larger down payments than FHA or VA loans.
The Federal Housing Administration (FHA) will insure the loan for the lender against loss in case the buyer cannot meet payments. This loan requires the borrower to carry mortgage insurance through FHA. These loans are available to borrowers with as little as three percent down payment.
The Veterans Administration (VA) will guarantee the mortgages offered by private lenders to qualified borrowers of the armed forces, active military personnel, veterans, or their widows. In some cases no down payment is required with this type of loan.
Some lenders will negotiate special terms for properties with high value that fall outside typical lending standards.
Adjustable Rate Mortgage (ARM):
On this type of mortgage, the interest rate can vary up or down. The rate is determined by financial indexes such as one-year treasury notes. The ARM offers a low beginning interest rate. This rate will go up over time. When interest rates are low, this type of mortgage might be a good option. Especially if its cap (the highest interest you may be charged) is not more than a few points higher than the current fixed rate. If you know your income will be rising in the future or you know you will not own your house for many years, this type of mortgage might be right for you.
THINGS TO CONSIDER AND DISCUSS WITH OUR REAL ESTATE SERVICES IF YOU ARE CONSIDERING AN ARM:
- What is the adjustment period (the time between interest rate changes)?
- What index is used to determine the interest rates?
- Does the introductory rate differ from the normal rate?
- What is the margin (the percentage added to the index rate each time your loan is adjusted)?
- What is the period adjustment cap?
- What is the lifetime adjustment cap?
These mortgages are offered for a short-term, typically five to seven years, but payments are based on what you would pay for a 30 year loan. The payments are low with a large payment due at the end of the term. At the end of the term, some balloon mortgages offer the option to extend the mortgage for the remainder of the 30-year term. The new monthly payments would be based on the rates at that time.
Fixed Rate Mortgage:
The interest rate in which you obtained your mortgage will remain the same for as long as you own your mortgage. No fluctuations in the market will change your rate. You will always know exactly how much you will pay each month in principal and interest. Taxes and interest may change from year to year.