Mortgages
There are many different types of mortgages available to home buyers now. It pays to know the different types you can get since not every type of mortgage will be right for you. The kind you get will depend on your credit score, how much of a down payment you make and other factors.
One of the most common types of mortgages is the FHA (Federal Housing Administration), insured by the government. FHA loans are usually used by people who want to buy a house but cannot afford to make a 20% down payment. Lenders significantly cut their risks when they can offer an FHA mortgage. Moreover, they allow for less than perfect credit history and even accept borrowers who have filed for bankruptcy or foreclosure if they have maintained decent credit in the past two or three years. FHA mortgages are popular with first time home buyers as well as people with low to moderate income.
VA loans from the Veteran's Administration are another type of government guaranteed mortgage. These mortgages are available to veterans of military service and sometimes their widows or widowers. You do not need a down payment; the loan is funded by the lender but guaranteed by the Department of Veterans' Affairs.
A fixed rate mortgage is a popular choice for many people. No matter how high interest rates rise it does not affect the interest you pay when you choose a fixed rate mortgage. You can also re-finance it to take advantage of lower interest rates. These loans can be for as little as ten years or as long as 50 years.
You could also choose an Adjustable Rate Mortgage (ARM) whose interest rate fluctuates as the prime rate falls or rises. Essentially, you're gambling that interest rates will stay low and the lender is betting that they will increase. Your mortgage payments will vary as rates change and can go up and down monthly, annually or semi-annually.
Interest only loans became popular during the housing boom of the 1990′s when everyday people became speculators and often owned several real estate investment properties. These mortgages gave borrowers an option to make payments on the interest only for a certain period of time. After that time was over, the balance of the mortgage would come due as a balloon payment. Theoretically, speculators would have flipped the property by then and pocketed a nice profit. Interest only mortgages turned out to be poor choices for many people.
People who don’t have money saved for a down payment will often get “combo” mortgages. These consist of a first and second mortgage, the second being used to make the down payment. Combos are also used when the down payment is less than 20%, causing PMI (private mortgage insurance) to kick in and add to the cost of the monthly mortgage payment.
Any of these mortgages may be right for you, depending on your financial situation and how long you expect to hold onto the property. Buying a house is a big decision and brings with it a lot of financial responsibility. Your lender will be more than happy to help you decide which types of mortgages would be most beneficial for you.