Know The Differences Between Different Kinds Of Mortgages
If you know you need to secure financing to buy a home, you may not be aware of how many different financial products there are to pick from. Here is what you need to know about several types of mortgages.
Fixed Rate Loans
Many future homeowners are applying for mortgages that have a fixed rate for many reasons. Having a fixed rate can give a home buyer the predictability and security they need to help budget for a home over the next 15 or 30 years. However, picking a fixed rate loan is not enough, since there are several types of fixed rate loans available.
Conventional loans are often used because they have the best interest rate. If you have a credit score that is very good along with a large down payment, a conventional loan can help save you a lot of money over the course of the loan.
If you're being denied a loan by lenders, you may be able to qualify for an FHA loan from the U.S. Federal Housing Administration. This is ideal for people that are unable to qualify for a conventional loan but are still looking for financing. The interest rate will be higher, and there will be private mortgage insurance, but it could be the best way to get the money you need.
Keep in mind that you can always refinance an FHA loan with streamlined refinancing. You may not have gotten the best deal at the time, but the streamlined process means that you can get a lower rate very quickly. You won't have to verify any of your assets or income again, which can result in getting approved much faster than with other loans.
Interest Only Loans
You may be better off getting an interest only loan, which are not at a fixed rate for the life of the loan. Instead, they have a variable rate that changes after a certain period of time. These types of loans are often used when buyers know that they will not be in the home for very long. Your monthly payments will be lower at first, but it may result in a balloon payment after a certain amount of time. If you cannot afford the large payment, you may be in a really tough financial situation. Adjustable rate mortgages also exist, where you pay a lower than normal interest rate at first, but the interest rate goes up after a set amount of years.
Contact a local loan or mortgage company for more information.