When planning to buy a new home choosing the correct mortgage option is an important step. Organizing your budget and checking the amount of payment that works allows you to decide which type to go with. Understanding the various options makes this task easier. Your lender can help answer questions or concerns if the following information does not make your decision clear.
The first mortgage option available to you is the 30-year Mortgage.This is the most popular for many reasons. The interest rate is fixed, meaning that it never changes. Since the loan is drawn out for a longer period, it allows for a smaller monthly payment. In this way homeowners can use extra money for home improvements or for other needed expenses. It also makes it possible to buy a more expensive house than you could normally afford. The bigger the house, the better tax break that can be taken. The downside to this type of mortgage is that you pay more interest and equity is slower.
The 15-year Mortgage is the next mortgage option available. This loan is commonly used to refinance but is available for you if saving money and paying the loan faster is the correct way to go. Paying the loan down faster also quickens the equity and offers a set interest rate. The downside is that a bigger payment is required. This leaves less money for improvements or extra expenses, and for most will allow for a less expensive loan that you can qualify for.
The third type of mortgage is best for people that either feel that the loan can be paid off quickly or that the interest rates will drop. Adjustable-Rate Mortgage has a low beginning interest rate, but then after a set time will move up or down depending on the market. If this type of mortgage is not paid off quickly there is a chance that you could pay an extremely high interest rate on the back end.
The Federal Housing Administration (FHA) Mortgage is a great way for people that normally would not qualify for a loan to own a home. This government backed mortgage option allows for a lower credit score and a way smaller down payment. Some lenders do not cover this type of loan but if you use the Money Store as a mortgage lender then you do not have to search around.
For those that are in the military, or are veterans, the Department of Veterans Affairs (VA) Mortgage is the way to go. It allows you to get a loan without any down payment. There is a mandatory funding fee that must be paid upfront, but it is less than a traditional down payment.
The United States Department of Agriculture (USDA) Mortgage is an option for some home buyers. This type of loan is designed to help you get a loan in rural or some suburban areas. There are income level requirements with this type of mortgage, as well as a cap on property amounts.
A mortgage that is best left for high income people is the Jumbo Mortgage. As you would guess this is a mortgage type for loans above a set dollar amount. Each county is different so talking with a lender will give the exact set amount. You can have a fixed or variable rate, but this mortgage requires a high credit score and a decent sized down payment.
The final type of mortgage offered by lenders is the Interest-only Mortgage. With this mortgage option you will pay off the interest first. This is good for people willing and able to make extra payments towards the principal. You will need to show the ability to pay off the loan to the lender, such as a high income or a large set bonus.
The 8 mortgage types listed above can cause slight confusion to a new home buyer. Each option has pros and cons, while some are only available to qualified people. The Money Store experts can help with questions and can get you on your way to home ownership.