A new home is one of the biggest purchases you will ever make, so it’s very important to do your research and get the right deal. There are many mortgage products available to home buyers. Finding the right one for you takes some effort. Think about how long you plan to stay in your home before you decide on a mortgage. You should get quotes from several institutions, including credit unions, banks and finance companies. Some companies offer several types of loans, while others specialize in a certain type of loan. The Internet makes shopping around for a mortgage easier because you can get information from several funding sources quickly and find out which loans you qualify for without having to leave your home.
Fixed Rate Mortgages
Fixed rate mortgages are the most traditional type of home loan. These loans are best for people who plan to stay in their homes for a long period of time and don’t plan on refinancing. Fixed rate mortgages have the same interest rate over the entire course of the loan. The loan term may be anywhere from ten years to 40 years. Some companies only offer traditional 15 year or 30 year loans, while others offer 10 year, 20 year and other terms. One of the main benefits of a fixed rate mortgage is that the payments are predictable. Your mortgage payment amount remains the same until the loan is paid in full. Most companies require a down payment of 20 percent, but borrowers with high credit scores may qualify for a traditional loan with as little as five percent down.
Adjustable Rate Mortgage
An adjustable rate mortgage is best for people who expect their income to rise within the next few years. It allows borrowers to purchase a house that is slightly above the price they want to pay because their payments will be low for the first few years while their income is rising. The rate on these loans usually starts out very low and increases each year. Some adjustable rate mortgages have rates that change more often than every year, so make sure that you understand how often your rates will change if you choose this type of loan. The interest rate is typically capped so that it cannot adjust more than two or three percentage points each year. Most loans with adjustable rates also have a cap that limits the number of percentage points that the loan can adjust. This limit is typically six or seven percentage points.
Borrowers who don’t expect to stay in their home for more than seven years may benefit from taking out a balloon mortgage. This type of mortgage typically carries a lower interest rate than a traditional fixed rate mortgage. It is also more risky than a traditional mortgage because the loan is short-term and must be repaid in five or seven years. Borrowers who are still in the home at this time may be forced to refinance if they cannot repay the balance of the loan when it is due.
Jumbo Mortgage Loans
Jumbo loans are designed for people who need to borrow a large amount of money to purchase their home. Federal guidelines from Freddie Mac and Fannie Mae limit the amount that borrowers can get for a home loan to $417,000 for a single family home. Borrowers who are purchasing a home that costs more than this amount should look into getting a jumbo loan.
There is no home loan that works for everyone. It’s best to take your time researching the area you will be purchasing your home in and the loan options available to you before committing to a certain loan type or a certain lender.