Understanding Mortgage Options

So, you’ve decided to buy your first home but aren’t sure how you’re going to pull it off?  Unless you have enough cash to make the purchase, financing is the way to make it all happen.  There isn’t anything to fear if you know the rules.  To win at any game, learning the rules first will usually put you in a favorable position.  Below are 5 different types of mortgage options that commonly pertain to buying real estate.

Fixed-Rate Mortgages

Fixed-rate mortgages usually are offered in 15-year, 20-year or 30-year terms, and the interest rate over the life of the loan doesn’t change.  Something you should know about this type of loan is that your principal and interest payments stay the same for the life of the loan.  This can help budget your other expenses more accurately, but it could also take longer to build equity in the investment. 

Government-Insured Mortgages

These options are made available through the FHA, VA, and USDA.  Even though the U.S. government isn’t a lender, it does help in making homeownership possible for more Americans. 

FHA Loans – are a good option for first-time home buyers who may not have enough saved for a large down payment.  Borrowers who have a bankruptcy or foreclosure on record can still qualify for an FHA backed mortgage.

USDA Loans – are low-interest loans designed for low-income Americans who may not qualify for traditional mortgages.  The area must be USDA eligible, and the borrower must meet certain income requirements to qualify.  Some USDA loans don’t even require a down payment if eligible.  

VA loans – are designed specifically to give our military personnel the benefit of buying a home with zero down and no mortgage insurance.

Conventional Mortgages

Conventional mortgages are not insured by the Federal government and may require private mortgage insurance when you put down less than 20%.  Conventional mortgages will benefit the most for those with strong credit, stable income and employment.

Adjustable Rate Mortgage (ARM)

Adjustable Rate Mortgage (ARM) is a type of mortgage in which the interest rate applied on the outstanding balance varies throughout the life of the loan.  An ARM can be a smart financial choice for someone planning to pay off the loan in full before the point of rate adjustment, someone who can refinance the new balance before the balloon payment, or those who will not be financially hurt when the rate adjusts. 

Jumbo Mortgages

Jumbo loans are more common in higher-cost areas, and generally require more in-depth documentation to qualify.  Jumbo loans make sense for more affluent buyers purchasing a high-end home. Jumbo borrowers should have good to excellent credit, a high income and a substantial down payment.

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