All lenders will be different with their opportunities, but the most common options most offer are the fixed rate, adjustable rate or affordable housing programs. Determining which mortgage loan best suits your needs will depend on what you’re looking for and what you have to give.
Here are the different options and what they will entail for buyers looking for a home loan:
A fixed rate loan is one that will keep the same rate from the time the loan is closed to the time the loan is paid off, never changing, so that the homebuyer doesn’t get an unexpected bill one month.
A borrower can achieve peace of mind by locking in the current rate if it’s low. They have no worries that the loan will increase in a few years if the rate goes up. Whether the loan is for 20 or 30 years, the rate and payment will always remain the same until the very end.
The downside to a fixed rate loan is that they usually come with higher rates than the adjustable rate loans – at least initially. Financial institutions also tend to want to protect their investment by requiring mortgage insurance if you have less than perfect credit, which then costs a borrower more in monthly costs.
An adjustable rate mortgage loan is when the interest rate is set to be adjustable throughout the life of the loan. So for the first five years, you might get an attractive interest rate.
But once the five years is up, the lender has the right to raise the rate which can cripple your payment ability if you have bad credit and can’t afford the new monthly installment. You may have the option to refinance once the rate adjusts, but if your credit is bad, you could wind up in foreclosure instead.
You might benefit from this type of loan, because if the interest rates go down, the mortgage rate can go down on the loan, too. The disadvantage to this type of loan, is that if the interest rate goes higher, so does the loan.
A borrower will ultimately go through several gambles throughout the life the loan. Those who qualify for this type of mortgage loan are generally those who have less money to use as a down payment.
Another option is the affordable housing programs that are available to buyers. These include the first time buyer loans. This allows those who have little to no down payment to gain access to the home they want to buy.
If you’re unable to qualify for any other type of mortgage loan, you could probably get one of these loans. You’re still expected to meet some requirements, though, such as a certain percentage of the loan for a down payment. The other loans available usually require a much higher percentage of the total loan to put down.
When applying for any type of mortgage loans, you’ll need to make sure you’re credit worthy because this can hurt your chances for the best rates and payments. Make sure you check your credit reports and fix anything that could hurt your chances of qualifying for the loan you need.
Get the best deals you can now. If situations come up in the future and you’re unable to make the payments as needed, a refinance option could be available to you, so you can make those payments easier.
Plus, if your credit is poor right now, and the only loan you can qualify for has a high interest rate, you can refinance one or two years down the road when you’ve had time to clean up your credit and polish it so that you qualify for a better rate and lower payment.
If you’re planning to sell your home soon, make sure you’re predicting how well you’ll fare in the buyer’s market, too, since that’s what hat you’ll be wearing when you close on the sale of your existing home.
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