Deciding Which Mortgage Loan Is Best for You
The housing market, at least for now, is certainly a buyers market. Home prices are at an all-time low and the possibility of making a large profit on any home that is purchased during this period is significant. Homes that were once going for 250k only three years ago are now on the market for 50k or less.
Eventually these homes will return to higher values, creating a profit for the owner. With this in mind, many are looking to buy now, but are unsure what the different types of mortgage loans are or how they work; understanding these different options will help prospective buyers to purchase a home or investment property easily.
One type of mortgage is the Conventional Fixed Rate Mortgage. This type of mortgage is a loan that has a fixed rate of interest for the entire length of the loan. These are the perfect loan for people who intend to remain in the home for an extended period of time.
Another type is the Adjustable Rate Mortgage (ARM). This mortgage is commonly known as a 5/1 or a 3/1 mortgage. This loan offers a low introductory interest rate for the first few years of the loan. After the introductory period, it begins to increase the interest rate each year until the end of the loan. These loans are a great way to get into a home quickly with very low payments. However, you must be prepared to pay the higher mortgage payments once the adjustment period begins. Often homeowners that reach the adjustment period and plan to remain in the home refinance to a fixed rate loan at that time.
A third type are Balloon Mortgages. These mortgages are also known as interest only mortgages. This type of loan allows the borrower to pay only the interest on the mortgage for a specific period of time. After the interest only period is over, the balance of the mortgage will either convert to an ARM or the balance will need to be paid in full. Investors that flip properties find this to be a valuable tool.
Lastly, there are also FHA Loans. Many first time home buyers look to the Federal Housing Authority (FHA) as a way to obtain their first mortgage. The FHA provides an insurance policy to the lender stating that if the mortgage goes into foreclosure, they will pay any balance that remains after the sale of the property. This additional insurance policy helps many people qualify for homes that could not qualify under other means. FHA offers fixed rate and adjustable mortgage programs. The FHA also provides many services for lower incomes and people with less-than-perfect credit.
About the Author:
First Alliance Home Mortgage is New Jersey's premier Mortgage Banker/Broker. Their experienced Loan Officers provide clients with the latest information on special government programs, equity acceleration, and how to choose the type of loan that best suits their needs. http://www.fahmloans.com
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