If you are looking to buy your first home, or sell your existing home and purchase a new one, you may need an overview or a refresher on navigating mortgage lenders and the mortgage options that are available to you.
Taking out a mortgage is a huge milestone, and it is important to understand exactly what it is, especially if you are going to be paying it for decades to come. There are 3 basic parts that comprise a home loan mortgage:
- Down payment This is the payment that is required to begin and secure the mortgage. As a rule of thumb, the larger amount you are able to put down, the better deal you will be given in the long term. This can include a lower interest rate, less accrued fees, and additional equity gained quicker.
- Monthly payment The potential monthly payment is the amount you will be billed every month, sort of akin to a rent payment; however, it include payment on the loan, interest, and property taxes in the final requested sum.
- Additional fees Fees are both various payments required when applying for the home loan, and fees that can be included over the life of the montage.
Types of mortgages
There are two basic types that most mortgage lenders will offer.
- Pledged asset mortgages means you can use collateral such as stocks and bonds when applying for your loan. This can eliminate a down payment and any additional insurance requirements that may have otherwise been needed.
- Mortgage assistance programs are programs in place that can help when obtaining a mortgage. These options are usually available by checking with banks, city development officials, or even real estate agents who can recommend options.
There are many options when it comes to government backed mortgages as well.
- VA loans are in place to assist those who have served in any branch of the united States military on active duty. If you or a family member who is purchasing the house with you has served, you can submit a certificate of eligibility, along with your discharge papers to a nearby VA center to begin the process.
- FHS loans are for those looking for affordable housing options, and it stands for federal Housing Administration. These are offered by banks, but insured by the government, meaning it can be a lower cost option because the bank doesn’t run any risk of losing money if payments are missed, or a home is foreclosed on. This option is one of the most common, and it is the most affordable to those who haven’t served in the military.
- USDA loans are insured by the United States Department of Agriculture, and are for buyers looking to purchase rural land. This is typically in place for people unable to receive a loan from a traditional source, who have an AGI at or below the average for low income in their district.
While mortgage lenders will be able to explain the ins and out of each loan offered, this is the basic setup of the most commonly found types.
Adjustable and Fixed Rate Loans
- Fixed rate means your monthly payments are always a set agreed upon amount. This is best served when your loan has a low interest rate.
- Adjustable rate means you monthly payment can vary due to accrued interest rates. While it is generally better to stick with a fixed rate, as with this type payments can go higher as rates increase. If you are aware of dropping rates; however, you could have the option of refinancing your mortgage with an adjustable rate to take advantage of it.
There are pros and cons to both, but working with mortgage lenders who knows your income specifically, you will be able to find the right choice for you.
Getting a mortgage doesn’t have to be confusing. Think on the above options, and ask your lender for specifics if you think a type would be right for you and your family.