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Mortgages Simplified


 Let's face it-financing is not the most exciting part of buying a new home. While most of us would rather be shopping for paint colors than interest rates-understanding how to choose the right mortgage is a crucial step.

Feeling overwhelmed with options and information? Use the guide below to familiarize yourself with the most common choices available to you.

1. The 30 Year Fixed Rate Mortgage:  This is the traditional mortgage most people immediately associate with home-ownership. A fixed rate mortgage ensures a stable interest rate over the life of the loan regardless of market fluctuations. If you've found a house you plan to stay in for a long time and like the security of knowing your monthly payments, this is a good option for you to consider.

2. The 15 Year Fixed Rate Mortgage: These loans are exactly like the 30 year option except you save thousands in interest by paying the loan back in half the time. If you like the security of a fixed rate but are financially able to afford a larger payment look into this type of loan.

3. FHA Loans: The Federal Housing Administration backs these mortgages making them "unconventional." With government backing, you become a less risky borrower-even if your credit score could use some work. Another benefit to FHA loans are the 3.5% minimum down payments-much lower than standard loans. This type also allows the seller to contribute up to 6% of the sales price in closing costs--a good deal if you can negotiate it! There are income requirements associated with this type of mortgage so it's best to speak with your lender about options and qualifications.

4. VA Loans: This special type of mortgage is also government-backed and available only to military veterans. Unlike other loans, 100% financing is available as a "Thank You" for serving in the armed forces. VA Loans are available in 15 or 30 year re-payment schedules allowing for even more flexibility.

5. Jumbo Loans: Specifically designed for financing amounts over $417,000, jumbo loans are perfect for those of you purchasing your dream home. Considering the higher principle, lenders will require a much more substantial down payment since they consider loaning such a large amount a risk. Jumbo loans are available in even higher increments ($650,000+) and are called "Super Jumbo" Loans. These are available in combination with 30-Year Fixed, FHA and Adjustable Rate mortgages. If you are able to qualify for an FHA loan in a jumbo amount, you receive the added benefit of nearly 97% financing up-front.

6. Adjustable Rate Mortgages: This type of loan is different from the others and may not be ideal for the "slow and steady" crowd. ARM's have a fixed interest rate for a set period of time (5, 7 etc.) but then the rate adjusts monthly, quarterly or annually depending on the current market. This is a great option for people who won't be staying in their home for more than 5 years or are market savvy and like to keep on top of interest rates to re-finance to their benefit.

There are pros and cons to all types of loans-the best thing to do is sit down with a lender you trust and discussing your financial situation honestly. A good lender will be able to steer you in the right direction and choose the best option for you.

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