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Mortgage Loans Explained

 

What type of mortgage is right for you? Which type of mortgage can help you to buy the home of your dreams? What you may not realize is that there are numerous options to consider, usually providing something for everyone’s needs. Keep in mind that not everyone should own a home. You will need to have income to prove you can pay for the mortgage. You will need to show a lender that you have good credit history. You will need to have steady employment to show you can pay your bills, as is usually the case. Keeping that in mind, consider what your options are when it comes to choosing a mortgage loan.

Types of Mortgages

A mortgage is a loan to purchase a home or other real estate or property type. This is a secured loan, which means that the lender is able to foreclose on you and take possession of your home, or force a sale of the property, to recoup some of its investment in it, if in fact you default on the loan. You want to avoid this. To do so, choose the right loan for your needs. The following are some of the main options in mortgages. Talk to your lender about the options available to you. Then discuss which are available to you for your situation.

Fixed Rate Mortgage – Considered the safest method, this type of mortgage helps you to ensure you get a set monthly payment. With this mortgage, the interest rate remains the same throughout the life of the loan. This means that your payment will remain the same over the length of the mortgage.

Adjustable Rate Mortgage – This type of mortgage is the opposite of a fixed rate. Here, the interest rate may adjust up or down over the length of your loan. In some mortgages, it cannot go down. However, for those who select this method, the goal is often to take advantage of very low interest rates that may be in place right now. If the key lending rate rises across the board, though, your interest rate may rise as well. This means your monthly payment can change over the lifetime of your loan.

Interest Only Mortgage – These types of loans allow you to pay the interest only on the mortgage loan for a limited amount of time. You will pay a monthly payment that pays off the interest accumulating on the loan, which is less because you do not have to pay the principle. However, after a set number of years, you will need to make a balloon payment to pay off the principle. This option is good for those who have a seasonal job or who may be paid on commission. It allows you to pay less when you need to, but allows you to pay down the principle when you have the funds to do so.

FHA Loan – An FHA loan is one that many consumers will hear about from their lender, especially if they are a first time homebuyer. The US Department of Housing and Urban Development provides guarantees to some homeowners. This works much like an insurance program. You get a lower interest rate and easier qualifying terms when you have this type of loan. If you default, the lender is able to cash in the insurance policy for a claim. If you qualify, it could save you money.

VA Loans – VA loans are similar to FHA in terms of what they offer, but these loans are meant to help veterans of the Armed Forces, active duty or not, to obtain a home loan with easier qualifications. The VA does not loan to you, but traditional lenders that qualify under the program do, and can help you to qualify for this type of loan.

Other loan offers may be available.

How to Choose the Right Mortgage for You

When considering the options in mortgages, realize that you have plenty of options to choose from, but chances are good only one will fit all of your needs. Here are some things to think about as you consider your options.

Do you want a low interest rate loan? If so, consider adjustable rate loans, which often have some of the lowest interest rates. However, do be prepared to pay more if interest rates increase. If you can handle that, consider this option.

Do you have a less than perfect credit score? FHA loans can help you to qualify if you meet lower qualifications. This option helps you to be less of a risk to lenders, which means more people will qualify for the loan.

If you worked in the Armed Forced or are currently active duty, applying for a VA loan is always a good idea. It can help you to qualify for the lowest interest rates. You will also pay less overall for the down payment and fees associated with the loan.

In some cases, you should also consider your down payment. Most traditional lenders require a 20 percent or more down payment on the purchase of the home. This provides for more protection for the lender. If you place a larger amount down, you may be able to get a lower interest rate.

In addition to this, do realize that you can get an FHA loan that also is a fixed rate loan. Often times, lenders will work with you to determine what the best combination of features are for your needs and then help you to find a loan that fits those needs.

Know what you need – if you need a low monthly payment, longer repayment terms, better features and easy qualification – choose the loan that first those needs. Work with your lender to ensure you qualify for the various types of loans you are hoping for, too. In some cases, you can just apply for a loan and the lender will help you to determine the best fit.

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