If you’re serious about buying a home, you may be ready to apply for a mortgage. Before applying for your home loan, though, it can be beneficial to know about the different options available. Depending on your individual circumstances, a traditional mortgage may not be right for you. Although there are a lot of different types of mortgages, some of the following are the most common:
One of the most common home loans out there, fixed-rate mortgages have just that: fixed interest rates. These types of home loans are amortized over the life of the loan, which means that the amount you borrowed is divided into equal monthly payments. Although the most common type of fixed-rate mortgage will have a 30-year duration, more and more lenders are also offering fixed-rate mortgages that last for 15 years, 20 years, 40 years, and even 50 years.
An adjustable-rate mortgage, or simply known as an ARM, doesn’t offer the stability that a fixed-rate mortgage does. However, it does offer some advantages that appeal to many homebuyers. For example, initial interest rates for ARMs tend to be very low. But as interest rates increase, so will the monthly payments. As such, you’ll want to be prepared for these fluctuations before you take on this type of mortgage. If the higher interest rates would put your monthly mortgage out of your price range, you may want to avoid an ARM. But if you can afford the higher mortgages or you don’t plan on being in your home very long, an ARM may be the way to go.
With standard mortgages, you can only borrow up to a certain amount. If you need to finance a more expensive home (often more than $425,000, but this varies by state), you may need a jumbo mortgage. These types of home loans often come with higher interest rates because the amount of money being borrowed is much more than the amounts financed through conventional mortgages.
Balloon mortgages have a lot of the same qualities as fixed-rate home loans, but they last for a much shorter duration. These types of loans usually consist of smaller monthly payments that build up to a much bigger payment at the end of the mortgage term, which is the balloon payment. If you’re confident that you will have the money for the balloon payment once it is due, and you are unable to pay the larger monthly payments in the interim, a balloon mortgage could be a good solution. But if you have any doubts whatsoever of being able to afford that balloon payment, you’re better off shopping around for another type of mortgage.
These types of home loans allow borrowers to make “interest-only” payments for the first few years, along with the option to pay into the principal as well. Interest-only mortgages are somewhat similar to adjustable rate mortgages.
Are you thinking about buying a home, but you’re planning on applying for a mortgage? Most mortgages require that homebuyers put down at least 10 percent of the home’s sale price, but coming up with that money can be hard. In addition to down payment money, there are also closing costs to budget for. If you’re receiving periodic payments from an annuity or structured settlement, why wait for money that rightfully belongs to you? Instead of receiving your cash in smaller installments, you may want to consider selling your future payments so that you receive money upfront. Contact Peachtree Financial Solutions today to learn more about selling future payments for a lump sum of cash.
Nothing above is meant to provide financial, legal, or tax advice. You should meet with appropriate professionals for such services.