Which Mortgage is Right For You?
Posted by Joseph Bemis // June 24, 2015
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When looking to buy a home, one of the first considerations that most buyers need to make is what type of mortgage is right for them and their finances. There are many different types of mortgages and many builders, banks and investors have different programs to consider as well. There are many different government programs available for certain mortgages and interest rates will vary depending on credit, type of mortgage and the lender. It can be daunting to consider all of these options at one time, but you can find the best mortgage option for your needs.
Some of the different types of mortgages that buyers may want to consider are:
- Fixed Rate Mortgage: a fixed rate mortgage keeps the interest rate on your home consistent throughout the life of the mortgage. Your monthly payments will be equally divided throughout the duration of the loan. However for the first several years of the mortgage, only a small portion of your payment will go towards the principle of the loan, and most of it will go to the interest. Most fixed rate loans are 10, 15 or 30-year notes, with 30 being the most popular because of the lower payments.
- Adjustable Rate Mortgage: an adjustable rate mortgage allows the rate of interest to change year to year over the length of the mortgage. These loans often allow buyers to borrow more, because they can be qualified for these loans at a lower payment. This option also allows buyers to take advantage of lower rates without refinancing when rates are falling. But the rates can also rise significantly. These loans do typically have a cap on how much the rate of interest can change over the duration of the mortgage.
- Federal Housing Administration (FHA) Loans: FHA loans are government backed loans, designed to help individuals who cannot qualify for a traditional mortgage, qualify for a home loan. These loans may be able to offer low or no down payment options. However the size of these loans is much more limited.
- Veterans Administration (VA) Loans: VA loans offer mortgages for active duty military, eligible veterans, and surviving spouses. These loans often have low or no down payment. The size of these loans also maybe more limited.
There are many mortgage options for buyers to consider before buying a home. It may help for buyers to consider their monthly budget and decide what amount they would be comfortable with before going to meet with lenders. With that amount in mind they can discuss the right amount to borrow and how different options would work with that budget. Buyers may also find that many new homes and real estate companies offer their own financing options. It is always a good idea to shop around and find the best financing option for your unique situation.