Are you in need of a mortgage? You have a lot of various types to choose from. But how do you know which one is right for your situation? And what do all of these various loan types mean as far as your long term financial situation? Here is some information to help you answer those questions:
Conventional Mortgage – These are market rate based, usually for 30 year terms on most typical homes. The determination of market rates is done mainly via 10-year bond rates, due to typical 30-year loans being refinanced about every 10 or so years. Most anyone possessing decent credit can obtain one of these conventional home mortgage loans, spread out over 30 years, with a downpayment of 10-20 percent. This will depend on credit history, credit scores, and ‘debt-to-income’ (DTI) ratios.
FHA Loans – An FHA loan is one that’s available to anybody who has a fairly good DTI, and they’re all FHA covered. Should you default on these loans, the FHA would have to pay it for you, by utilizing the insurance premium that they charge all borrowers for taking out their loans. This is the security that enables homeowners to actually borrow bigger amounts than they could on their own. They also get the benefit of needing a smaller downpayment, in the range of 3% as opposed to the 10-20%.
VA Loans – A VA loan is for U.S. Veterans, and offer them loans consisting of lower rates as well as no down payment. The U.S. military benefits program sponsors them.
Adjustable Rate Mortgages – These mortgages, known as ‘ARMs’, are loans with rates that can change with the market. An ARM can affect your monthly payment, either up or down. One month you might be fine, then the next you need extra cash to make your payment.
No Closing Costs – These loans at first sound really great, no credit checks, no fees for paperwork, and no closing costs. But nothing is as it seems. The interest rates for these loans, and the monthly payments, will definitely make up for the fee waivers.
Bridge Mortgage – These are loans designed to help homeowners ‘bridge the gap” that exists between home purchase cost and their loan cost. Bridge loans help people needing to relocate, and need to buy a home before they sell their current one. These loans are attached to the first home that they’re trying to sell, enabling them to move, using the old home as the collateral for getting a new loan for their current home.
As you can see, you can find many kinds of mortgages, much more than are mentioned here. But these are some of the more common ones. You can get help looking for one to suit you from a financial advisor.