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Where affordability and quality go hand in hand.
What Type of Loan Is Right For You?
When choosing a mortgage, find out about…
- The down payment that is required
- Both the interest rate and the annual percentage rate (APR)
- Standard closing costs (and any extra fee the lender may charge and why)
- The possibility that your mortgage will be resold on the secondary market
There are many different types of loans available.
Bridge Loan
Should you sell your home first before buying a new one or buy first and then sell? Most people need the equity in their current home to purchase a new one. But what if you sell first and don't have anywhere to go? A bridge loan may be an option. A bridge loan is a temporary loan that you obtain from your lender until the permanent one can be put in place. Once the primary mortgage is in place, the bridge loan is paid off and closed out. But understand that while waiting for a closing on your home, you will be making two mortgage payments. You will owe your present mortgage payment plus the payment on the bridge loan. Be certain you can afford it.Conventional Mortgages
A conventional mortgage offers a fixed rate. They typically come in 10, 15 or 30-year loans. Although conventional loans used to require 20% down, most people today put 10% down (68% of buyers today put less than 20% down). Just keep in mind, if you put less than 20% down, you'll be asked to carry private mortgage insurance (PMI). If you're a first-time homebuyer, there are many low down payment loans available that ask for 3-10% down.Adjustable Rate Mortgages
Adjustable rate mortgages carry an interest rate that changes to keep pace with current market rates. This is a good idea for buyers planning to stay in their home for a short time. If you plan to stay in the home for an extended period of time, you're better of locking in a fixed rate with a conventional loan. When deciding whether an ARM is right for you, determine the following:- Will I be able to afford higher mortgage payments if interest rates go up?
- Will I be making other sizable purchases in the near future such as a car or college?
- How long do I plan to own this home?
FHA Mortgages
Loans through The Federal Housing Administration (FHA) help low-to-moderate income home buyers purchase homes with low down payments (approximately 3%). You can use a gift or unsecured loan for the down payment and closing costs. Also, these loans are usually assumable (along with the current interest rate) by the next qualified home owner when you sell your home, which is an added benefit when it comes time to sell.VA Mortgages
Veteran Affairs loans are great because they provide the opportunity to buy a home with no down payment. They are offered up to a predetermined loan amount (not more than $200,000) and are assumable by qualified buyers. To qualify for a VA loan, the veteran must be on active duty or have a discharge (other than dishonorable), along with one of the following:- 180 days active (not reserve) duty between September 16, 1940 and September 7, 1980
- 90 days service during a war (Korean, Vietnam, Persian Gulf, etc.)
- Six years service in the National Guard
Assumable Mortgages
An assumable mortgage is a loan that stays with the property. It is simply transferred to the qualified home buyer. This means considerable savings for the next buyer. It may include no points, no interest rate change and low closing costs. Assumable mortgages are often the most valuable part of a property. FHA loans given before December 1, 1986 and VA loans given before March 1,1988 are completely assumable to the qualified buyer. This means that you can take the loan along with the real estate, just as it stands.Balloon Mortgages
The Balloon Mortgage has a fixed rate for a certain time frame, typically seven years, followed by a "balloon" payment requiring repayment of the entire home loan balance. Interest rates are generally lower than conventional loans. People may choose this type of loan because they plan on either selling the home, paying it off, or refinancing before the balloon payment is due.If you put less than 20% down on a loan, you will likely have to pay PMI or Private Mortgage Insurance. PMI protects the lender against a loss in the event of default by the borrower. You can ask your mortgage company to remove the PMI if you've paid 20% of the loan. However, you will be asked to provide an appraisal.
Most lenders require you pay real estate taxes and insurance on a monthly
basis. This cost is included in your monthly mortgage payment, placed
in an escrow account, and paid out by your mortgage company.
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