When
it comes time to consider buying a home it is important to have all
your ducks in a row. With such low inventory levels you can lose out on
a home while you are getting financing together. Unless you are paying
cash for a house, you will have to look at financing. Once you decide
to finance your home purchase you have to decide which type of mortgage
to apply for. This blog is about the most popular types of loan
programs.
Conventional Fixed Rate Mortgages
A
conventional fixed rate mortgage has an interest rate that will stay
the same over the entire term of the loan. Usually that means 15, 20,
or 30 years. The drawback of a loan like this is that if interest rates
fall, you could be stuck paying a higher rate.
Adjustable-Rate (Variable Rate) Mortgage
An
adjustable rate mortgage usually offers a lower initial rate of
interest than a fixed-rate loan. The drawback of this type of loan is
that after the initial period is over, the interest rate can fluxuate
over the life of the loan. When interest rates are on the rise you
could end up paying more in monthly payments than expected.
FHA (Federal Housing Administration) Loan
An
FHA backed loan can make owning a home possible for people that would
not qualify for a home loan under other programs. The biggest
difference is in the downpayment. Whereas, a conventional loan
(fixed/variable) might want as much as 20% down plus closing costs, an
FHA loan will require as little as 5% down plus closing costs. The
drawback to this type of loan is that the amount you can borrow might be
limited and you will have to pay MIP (mortgage insurance protection)
which is an insurance that protects the lender in the event of a buyer
default.
VA (Veterans Administration) Loan
A
VA loan is a guaranteed loan for eligible veterans, active duty
personnel and surviving spouses. Usually you do not have to come up
with a down payment. A VA loan also offers competitive interest rates.
Like a VA loan, the size of the loan could be limited.
Interest Only
An
interest only mortgage is when the borrower pays only the interest on
the loan in monthly payments for a fixed amount of time. After the
initial period is over the loan is due. This could cause a problem for
some borrowers because at this point your options are to pay a lump sum
or refinance.
Reverse Mortgage
A
reverse mortgage allows seniors to convert the equity in their homes to
cash that does not have to be paid back as long as the borrower is
living in the house. This is a good option for seniors that do not have
retirement savings or pensions however it is subject to a lot of false
advertising and aggressive lending practices.
The
decision of which mortgage option to use should not be made solely by
you. A mortgage professional should be contacted before you begin
looking for a home. That way they can start the ball rolling before you
make an offer. This can give you more bargaining power and help you
not lose out on the home you want. Team Johnson of Watson Realty Corp
can help recommend some great professionals in the mortgage lending
industry. Give us a call at 904-495-0146 or email us at teamjohnson@watsonrealtycorp.com
Team Johnson
Watson Realty Corp
St. Augustine, FL 32086
904-495-0146
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